The Rail System in Metropolis Is a Natural Monopoly

question 102

Multiple Choice

The rail system in Metropolis is a natural monopoly.If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?

• A)Price and output will be higher than if the monopoly were unregulated.
• B)Price and output will be lower than if the monopoly were unregulated.
• C)Price will be lower and output higher than if the monopoly were unregulated.
• D)Price will be higher and output lower than if the monopoly were unregulated.
• E)Profit will be lower than if the monopoly were unregulated, but price and output could either increase or decrease.

---

Definitions:

Noncash Assets

Assets that cannot be easily converted into cash, such as machinery, buildings, and inventory.

Capital Balances

The amount of money contributed to a company by its owners or shareholders plus retained earnings.

Liquidation

The process of winding up a company's operations, selling off its assets to pay creditors and distributing any remaining assets to its shareholders.

Partnership

A lawfully organized business effort where partners distribute management tasks and the earnings.