1. If a regulatory commission forces a natural monopoly to charge a price equal

Question

1. If a regulatory commission forces a natural monopoly to charge a price equal to its average total cost:

A) output will decrease.

B) the monopolist will realize a normal profit

C) resource allocation will worsen

D) the firm will earn an economic profit

2. If a regulatory commission wants to provide a natural monopoly with a fair return, it should estabish a

price that is equal to:

A) minimum average fixed cost

B) average total cost

C) marginal cost

D) marginal revenue

3. After adustiing for taxes and transfers for the income distribution for the United States, the Gini coefficien:

A) rises

B) gets closer to 1

C) is 0

D) declines

Explanation / Answer

1)B

2)C max profit is obtained when price is equal to marginal cost

3)B as inequalities are reduced

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