Which of the Following Is One Method by Which the Government

question 148

Multiple Choice

Which of the following is one method by which the government can regulate the price charged by a natural monopoly?

• A)Making marginal cost equal to marginal revenue pricing
• B)Setting prices for a period and then allowing the firm to keep any profits made over that period
• C)Average variable cost pricing
• D)Threatening to shut down the firm
• E)Fixed cost pricing

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Definitions:

Network Externalities

The effect that one user of a good or service has on the value of that product to other people, where the value increases as the number of users rises.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Natural Monopoly

A monopoly that exists when increasing returns to scale provide a large cost advantage to having all output produced by a single firm.

Network Externalities

The effect that an additional user of a good or service has on the value of that product to others, often positive, as in the case of telecommunications networks.