A. What is the defining characteristic of a natural monopoly?
b. Should the government break up a natural monopoly into two or more firms to make the industry more competitive?
c. Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to consumers. To achieve this goal, it requires that the natural monopoly set its price equal to marginal cost. Is this a feasible goal? Explain.
d. What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining average total cost?
a. The defining characteristic is the presence of significant economies of scale such that the average total cost of production declines over the relevant range of market demand.
b. No, given the importance of economies of scale, society is better of with one big firm producing the output rather than several small firms.
c. Setting price equals to marginal cost is not feasible because the natural monopoly will incur persistent losses and will not continue to produce in the long run.
d. An alternative solution is to require average total cost pricing; that is, price is set equal to the average cost of production (where the average cost includes the opportunity cost of funds invested in the firm by its owners). This will allow the monopolist to break even on its investment and stay in business.
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The study of the aggregate economic variables is
A) macroeconomics. B) microeconomics. C) positive economics. D) normative economics.
The short-run aggregate supply curve is upward-sloping because: a. the quantity of real output supplied is inversely related to aggregate supply
b. nominal incomes are fixed. c. of the conjunction between the incremental capital-output ratio and the interbank offer rate. d. an increase in price will increase the supply of money.
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A. short-run supply shock. B. long-run demand shock. C. long-run supply shock. D. short-run demand shock.