What is a natural monopoly and what problem does natural monopoly pose for regulators?
What will be an ideal response?
A natural monopoly is a firm that can supply the market at lower cost than two or more firms. It can do so because it has declining long-run average total cost over the entire range of market output. Because the LRAC is declining, the marginal cost must be below the LRAC. Therefore, if the regulator forces the firm to price at MC to achieve efficiency (such as is done by a perfectly competitive firm), the natural monopolist will fail to cover its total cost. It incurs an economic loss and requires a government subsidy to survive.
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Lulu purchased a security that promises to pay $50 twice a year from January 15, 2012 to January 15, 2016 and then pay $1,000 on January 15, 2016. The security is a debt to the company that issued it. The security is a
A) net investment to the company that issued it. B) share of stock. C) depreciating asset. D) physical capital. E) bond.
When a particular firm is fully utilizing its capital, its output is given by Y = 10 × . The cost of labor is $1 per unit. To maximize profit, how many units of labor should this firm use?
A) 25 B) 5 C) 3.16 D) 100 E) 50
Consider the following combinations of guns and butter that can be produced: 0 guns, 20,000 units of butter; 5,000 guns, 15,000 units of butter; 10,000 guns, 10,000 units of butter; 15,000 guns, 5,000 units of butter; 20,000 guns, 0 units of butter. The PPF between guns and butter is
A) a downward-sloping bowed-out curve. B) a downward-sloping straight line. C) an upward-sloping straight line. D) It is impossible to answer this question without knowing which good would be plotted on the vertical axis.
If you hear that unemployment increased by 2 percentage points to 4 %in the past year, while the labor force participation rate and the population remained constant, it means:
A. twice as many people are without work than was the case a year ago. B. unemployment doubled in the past year. C. there was a 100 percent increase in unemployment. D. All of these are true.