"If a natural monopoly is regulated using a marginal cost pricing rule, the firm makes zero economic profit." Is the previous statement correct or incorrect?
What will be an ideal response?
The statement is incorrect. If a firm is regulated using a marginal cost pricing rule, the firm incurs an economic loss.
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Refer to Figure 5-12. One way to obtain the economically efficient amount of college education is for governments to subsidize college education
What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.) A) P2-P1 B) P1 C) P2-P0 D) P0-P1
The principal-agent problem of ownership vs. control of the corporation arises when owners and managers
A) are the same people. B) pursue objectives that differ from those their customers wish them to pursue. C) pursue objectives that differ from those their workers wish them to pursue. D) pursue objectives that differ from those the government wishes them to pursue. E) pursue different objectives.
If bond prices rise,
A) interest rates rise, which in turn, discourage investment. B) interest rates fall, which in turn, discourage investment. C) interest rates rise, which in turn, stimulate investment. D) interest rates fall, which in turn, stimulate investment.
An example of an automatic stabilizer is
A. the raising of taxes on cigarettes to discourage smoking to stabilize health-care costs. B. the Congressional decision to increase unemployment benefits in a recession. C. the decision of the President to cut taxes in a recession. D. the progressive tax system.