Economic regulation occurs when a. monopoly is the optimal market structure. b.

Question

Economic regulation occurs when

a. monopoly is the optimal market structure.

b. the industry is highly competitive.

c. the product is important to economic welfare.

d. the government owns the assets of the industry

How should the price of a natural monopoly be regulated under the public interest theory of regulation?

a.   setting price equal to the average cost of production

b.   allowing a price that maximizes the profit of the natural monopoly

c.   using a marginal cost pricing rule

d.   subsidizing other producers to compete with the monopoly

The deadweight loss associated with a minimum wage occurs because

a.   the minimum wage increases the quantity of labor demanded.

b.   the minimum wage decreases the quantity of labor supplied.

c. the minimum wage falls below the equilibrium wage.

d.   employment after the minimum wage is less than employment at equilibrium and so the marginal benefit of more work exceeds the marginal cost.

For a product with external benefits like scientific or education that is produced in a competitive, unregulated market, how can the resulting market output be described?

a.   underproduction compared to the efficient level

b.   overproduction compared to the efficient level

c.   production equals the efficient level

d.   None of the above is correct.

Explanation / Answer

1> a. monopoly is the optimal market structure

Reason

In that case, it is called natural monopoly and government intervention may be required.

2>  a.   setting price equal to the average cost of production

Reason

This will make sure that the company is making normal profit.

3> d.   employment after the minimum wage is less than employment at equilibrium and so the marginal benefit of more work exceeds the marginal cost.

Reason

Labor demanded decreases after the min wage regulation

4> a.   underproduction compared to the efficient level

Reason

Since there is a positive externality, market will not produce social optimum output.

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