A Natural Monopoly Occurs Because Of

Question: Market failure occurs when:
Answer: Occurs whenever an imperfection in the market mechanism prevents optimal outcomes.
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Question: Which of the following is a form of government intervention that is designed to correct market failures?
Answer: Anti-trust laws
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Question: Which of the following can the government use to alter both firm behavior and industry structure?
Answer: Anti-trust laws
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Question: The goal of antitrust laws is to
Answer: Control the structure of an industry or prevent the abuse of market power.
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Question: A natural monopoly is a desirable market structure because
Answer: It allows the producer to deliver products to the market at the lowest possible cost.
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Question: Which of the following is used as an antitrust tool that focuses on the structure of industry?
Answer: Prohibiting mergers and acquisitions.
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Question: The long-run average total cost curve of a natural monopolist
Answer: Is downward-sloping in the relevant range of production.
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Question: A natural monopoly occurs because of
Answer: the existence of economies of scale
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Question: An unregulated natural monopoly can lead to
Answer: Higher prices for consumers.
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Question: For a natural monopoly, marginal cost
Answer: Is always below average total cost in the relevant range of production.
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Question: The long-run average total cost curve of a natural monopolist
Answer: Falls continuously as more output is produced.
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Question: To maximize profit, a natural monopolist produces the level of output at which
Answer: Marginal revenue equals marginal cost.
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Question: An unregulated natural monopoly is most likely to
Answer: Earn an economic profit.
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Question: Which of the following is not a regulatory option when the government is trying to prevent market failure in the case of a natural monopoly?
Answer: Cost regulation.
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Question: If the government forces a natural monopoly to produce the output level at which P = MC, the firm will
Answer: Incur losses.
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Question: If a natural monopoly is forced to set a price consistent with price efficiency, it will
Answer: Incur a loss on every unit of output produced.
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Question: For a natural monopoly, price efficiency means
Answer: price is set equal to marginal cost
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Question: If the government wants a natural monopolist to achieve allocative efficiency, the government should
Answer: Subsidize the firm and require marginal cost pricing.
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Question: A major drawback of providing subsidies to private companies that are natural monopolies is that
Answer: Taxpayers dislike this use of their tax dollars.
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Question: A natural monopoly has no incentive to limit its costs of production under which type of regulation?
Answer: Profit regulation.
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