Q6. When a regulatory agency requires a monopolist to use average cost pricing, the intent is to produce the quantity where the:

A)   the market demand curve intersects the average total cost curve.

B)   marginal revenue curve intersects the marginal cost curve.

C)   average total cost curve intersects the marginal revenue curve.

Q7. Natural monopolies exist because they can produce at lower costs with greater output, which means there are economies of scale. Which of the following industries is typically a natural monopoly?

A)    Utilities.

B)    Technology.

C)    Oil.

Q8. Which of the following is least likely to be considered a reason for the existence of a natural monopoly?

A)   Firms that have significant economies of scope.

B)   Firms for which average total cost decreases over the entire range of industry demand.

C)   Firms that can maximize profit when price equals marginal cost.

Q9. Consider the following statements:

Statement 1: “A natural monopoly exists when economies of scale are so pronounced that all of an industry’s demand should be supplied by one firm.”

Statement 2: “Monopoly is characterized by a single seller of a distinct product for which no good substitutes exist.”

Statement 3: “Average cost pricing is a form of regulation that is intended to force monopolists to reduce output to the point where the monopolist’s average total cost curve intersects its marginal cost curve.”

Which of the following best describes the accuracy of these statements?

          Statement 1                                Statement 2                                  Statement 3

A)                                                       Correct                                        Incorrect   Correct

B)                                                       Incorrect                                      Correct     Incorrect

C)                                                       Correct                                        Correct     Incorrect

Q10. Which of the following describes the regulatory practice of setting prices at a level where the monopoly firm’s average total cost curve intersects the demand curve?

A)   Marginal cost pricing.

B)   Average cost pricing.

C)   Cost-of-service pricing.

e

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