Refer to the above figure. If the government uses rate-of-return regulation for the natural monopolist, the firm will charge price
A. P1 and sell Q4 units.
B. P3 and sell Q3 units.
C. P5 and sell Q1 units.
D. P2 and sell Q1 units.
Answer: B
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Which of the following statements is true of optimization?
A) Optimization analysis only relates to the financial budget of an economic agent. B) Individuals who optimize do not consider costs when choosing the most feasible alternative. C) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits. D) Economic agents who optimize attempt to choose the best feasible option, given the information that they have.
When the free market produces less than the socially optimal quantity of a good,
a. negative externalities must be present b. marginal social cost must exceed marginal private cost c. marginal private benefit must exceed marginal social benefit d. the government should tax production of the good e. there has been a market failure
You are the manager of a monopoly that faces an inverse demand curve described by P = 200 ? 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is:
A. $110. B. $20. C. $290. D. $135.
A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to:
A. decrease. B. increase. C. either increase or decrease. D. remain constant.