Question 1

One In the News article says that when JetBlue "… comes to town, fares go down … " If entry barriers are low enough, a market

Accepted Answer

A)  Is inefficient.
B)  Violates antitrust laws.
C)  Requires regulation.
D)  Is contestable.E) None of the above
F) A) and D)

Question 2

1. B) Can be achieved at P3. C) Can be achieved at P4. D) Cannot be achieved at any price without a subsidy." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 27.1.Production efficiency

Accepted Answer

A)  Can be achieved at P1.
B)  Can be achieved at P3.
C)  Can be achieved at P4.
D)  Cannot be achieved at any price without a subsidy.E) All of the above
F) A) and B)

Question 3

When regulation results in an inferior mix of output, there are

Accepted Answer

A)  Administrative costs.
B)  Compliance costs.
C)  Efficiency costs.
D)  Equity costs.E) B) and D)
F) None of the above

Question 4

Prior to the deregulation of the railroad industry, there was little incentive to invest in new technology or equipment.This is an example of

Accepted Answer

A)  The failure of deregulation.
B)  The inefficiencies of regulation
C)  Market failure.
D)  The failure of laissez faire.E) A) and C)
F) All of the above

Question 5

The costs associated with regulation are a source of government failure.

Accepted Answer

A) True 
 B)False

Question 6

If government intervention fails to improve upon market outcomes, this is known as market failure.

Accepted Answer

A) True 
 B)False

Question 7

The first major regulatory target in the United States was

Accepted Answer

A)  Airlines.
B)  Railroads.
C)  Trucking firms.
D)  Telephone companies.E) All of the above
F) B) and D)

Question 8

A natural monopoly is a desirable market structure because

Accepted Answer

A)  It allows the producer to earn greater profit than is possible under competition.
B)  It allows the producer to deliver a higher-quality product to the market.
C)  It allows the producer to deliver products to the market at the lowest possible cost.
D)  The jobs it creates pay higher wages than those in a competitive industry.E) A) and B)
F) A) and C)

Question 9

What development turned the cable TV market into a contestable one?

Accepted Answer

A)  Economies of scale.
B)  Satellite and broadband technology.
C)  Cable TV firms raised prices.
D)  Cable TV firms were earning economic profits.E) B) and C)
F) A) and C)

Question 10

Economies of scale refer to the

Accepted Answer

A)  Reduction in minimum average costs due to an increase in the number of workers hired.
B)  Reduction in minimum average costs due to an increase in plant size.
C)  Downward-sloping portion of the marginal cost curve.
D)  Downward-sloping portion of the average total cost curve.E) None of the above
F) A) and B)

Question 11

Output regulation is likely to result in

Accepted Answer

A)  A surplus of the product.
B)  A decline in the quality of the product.
C)  An increase in the cost of subsidies.
D)  Profit maximization for the monopolist.E) A) and C)
F) A) and D)

Question 12

The major problem with price efficiency regulation is that the natural monopolist loses money or earns negative profits.

Accepted Answer

A) True 
 B)False

Question 13

For a natural monopoly, marginal cost

Accepted Answer

A)  Intersects average total cost at zero profit.
B)  Equals price at a profitable output level.
C)  Equals marginal revenue above the demand curve.
D)  Is always below average total cost in the relevant range of production.E) B) and C)
F) All of the above

Question 14

Which of the following is an example of government failure?

Accepted Answer

A)  Too much regulation resulting in wasted resources.
B)  Public goods.
C)  Externalities.
D)  Merit goods.E) None of the above
F) All of the above

Question 15

One consequence of airline deregulation in the 1980s was an increased concentration ratio.

Accepted Answer

A) True 
 B)False

Question 16

According to the article "Financial Woes Heating Up," California utilities

Accepted Answer

A)  Control the production of electricity but not the distribution.
B)  Experienced rising wholesale prices for electricity while retail rates were subject to a price ceiling.
C)  Experienced excess capacity and falling retail prices.
D)  Were taken over by the state due to bankruptcies.E) B) and C)
F) None of the above

Question 17

The Braden brothers considered starting a new skydiving company.Once they read the government regulations they would have to comply with, they changed their minds.This is an example of

Accepted Answer

A)  An administrative cost of regulation.
B)  An efficiency cost of regulation.
C)  A compliance cost of regulation.
D)  An equity cost of regulation.E) All of the above
F) A) and D)

Question 18

An industry in which one firm can achieve economies of scale over the entire range of market supply is a

Accepted Answer

A)  Contestable market.
B)  Kinked demand curve oligopoly.
C)  Natural monopoly.
D)  Perfectly competitive market.E) A) and B)
F) C) and D)

Question 19

Proponents of electric utility industry deregulation argue that

Accepted Answer

A)  Profit regulation resulted in increased costs and higher prices.
B)  Profit regulation resulted in too much investment in highly efficient energy production.
C)  Profit regulation resulted in industry output that was too great.
D)  Regulation of electricity producers favored industrial electricity users.E) B) and C)
F) A) and D)

Question 20

If a natural monopoly is forced to set a price consistent with price efficiency, it will

Accepted Answer

A)  Set price above marginal cost.
B)  Earn a profit on every unit of output produced.
C)  Set price equal to the ATC of production.
D)  Incur a loss on every unit of output produced.E) B) and C)
F) A) and D)

Exam 13: Natural Monopolies: Deregulation

A natural monopoly is a desirable market structure because

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The costs associated with regulation are a source of government failure.

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Prior to the deregulation of the railroad industry, there was little incentive to invest in new technology or equipment.This is an example of

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According to the article "Financial Woes Heating Up," California utilities

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If a natural monopoly is forced to set a price consistent with price efficiency, it will

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An industry in which one firm can achieve economies of scale over the entire range of market supply is a

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If government intervention fails to improve upon market outcomes, this is known as market failure.

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What development turned the cable TV market into a contestable one?

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The major problem with price efficiency regulation is that the natural monopolist loses money or earns negative profits.

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One consequence of airline deregulation in the 1980s was an increased concentration ratio.

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Which of the following is an example of government failure?

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One In the News article says that when JetBlue "… comes to town, fares go down … " If entry barriers are low enough, a market

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The first major regulatory target in the United States was

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Refer to Figure 27.1.Production efficiency

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The Braden brothers considered starting a new skydiving company.Once they read the government regulations they would have to comply with, they changed their minds.This is an example of

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Proponents of electric utility industry deregulation argue that

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For a natural monopoly, marginal cost

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Economies of scale refer to the

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When regulation results in an inferior mix of output, there are

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Output regulation is likely to result in

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