Exhibit 26-1 ATC 0 02 Ouantity 10. Refer to Exhibit 26-1. What price is charged

Question

Exhibit 26-1 ATC 0 02 Ouantity 10. Refer to Exhibit 26-1. What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm? b, P c. P d. a price below P and above P 11. Refer to Exhibit 26-1. Which of the following statements is false? If marginal-cost pricing is imposed on the natural monopoly firm, the firm takes a loss. a. b. If average-cost pricing is imposed on the natural monopoly firm, the firm earns zero economic profits. c. If the natural monopoly firm produces Q, units of output and charges Ps per unit, the firm eams zero economic profits. d. a andb e. a, b, and c 12. Refer to Exhibit 26-1. If average-cost pricing is imposed on the natural monopoly firm, what price is charged? b. P c. P d. any of the three prices 13. Which of the following is not a realistic scenario faced by government regulators of a natural The monopolist may have an incentive to prevent the regulators from learning the true costs of production The monopolist may want to give the regulators information on the costs of production but may not have it to give. The regulators may not care whether the monopolist gives them the true costs of a. b. c. d. e. All of the above are realistic Any cost information that is given to the regulators may be outdated by the time the regulators act on it.

Explanation / Answer

Ans:

10) Option A - P1

A natural monopoly will charge a price which is above the marginal cost.In case of marginal cost price regulation it charge the price of P1.

11) Option C

A natural monopoly will not charge P3 per unit when it is producing Q3 units of output.

12) Option B - P2

In case of average cost pricing the price charged is P2.

13) Option E

All of the above are realistic scenarios faced by the government regulators in case of natural monopoly.

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