Question

1.

A natural monopoly has an incentive to pad its cost of production under which type of regulation?

Group of answer choices

Profit regulation.

Social regulation.

Output regulation.

Price regulation.

2.

Government failure occurs when

Group of answer choices

Dealing with a natural monopoly.

Public goods are present.

Government intervention fails to improve economic outcomes.

There is market power.

3.

When firms have the ability to restrict output, raise prices, stifle competition, and inhibit innovation, the market failure involved is

Group of answer choices

Market power.

Inequities.

Externalities.

Public goods.

4

Which of the following is a form of government intervention that is designed to correct market failures?

Group of answer choices

Merit goods.

Antitrust laws.

Laissez faire.

Public goods.

5.

If profit regulation is used to control a natural monopolist, the monopolist is likely to

Group of answer choices

Increase the quality of its product in an effort to increase sales.

Attempt to reduce the costs of production.

Inflate or pad the costs of production.

Reduce maintenance of plants and equipment.

Answer 1

Ans.1- Profit regulation

A natural monopoly has an incentive to pad its cost of production only under profit regulation .

Ans.2- (C)

Government failure occurs when the government intervenes in the economy to fix a problem, but only ends up creating more problems

Ans.3- (A)

Ans.4- (B)

Antitrust laws are developed by the the U.S. government to protect consumers from predatory business practices. Antitrust laws basically try to increase competition in the market so that no firm has a high market power.'

Ans.5- (C)

If profit regulation is used to control a natural monopolist, the monopolist is likely to Inflate or pad the costs of production.

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