Explain why firms that enjoy economies of scale or scope are candidates for regulation.
What will be an ideal response?
Where economies of scale exist, one firm can produce a good at lower cost than if output were split into two or more firms. In such a natural monopoly situation, it is typical to have just one firm but to regulate it so cost savings can be passed on to consumers. Where economies of scope exist, one firm can produce a bundle of goods more cheaply than two or more separate firms can. Again, that firm may be allowed to produce the bundle of goods but be subjected to regulation so consumers receive the benefit.
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If a firm's average total cost is less than price where MR = MC
A) the firm should shut down. B) the firm should cut back on its output to lower its cost. C) the firm should continue to produce the output it is producing. D) the firm should raise its price.
A continuous choice variable
A. can take on only special values between two end points. B. must be continuously varied to attain the goal. C. is in unconstrained but not constrained problems. D. all of the above E. none of the above
In a market economy, entrepreneurs are most concerned with:
A. maximizing profits or minimizing losses. B. increasing the wages and salaries of workers. C. maximizing utility or satisfaction from limited incomes. D. the selfish pursuit of money.
It has been argued that regulations can often be the source of innovation. Provide an example of this in the banking industry.
What will be an ideal response?