The Problem with a Regulatory Authority Forcing a Natural Monopoly

question 45

Multiple Choice

The problem with a regulatory authority forcing a natural monopoly to use marginal cost pricing is that the natural monopoly would

• A)not be capable of supplying all the quantity that buyers would take off the market.
• B)only break even.
• C)earn above-normal profits.
• D)operate at a loss.
• E)price too high.

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Definitions:

FICA

The Federal Insurance Contributions Act tax, a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

Federal Insurance Contributions Act

A U.S. law that requires employees to contribute to Social Security and Medicare, with matching contributions from employers.

Burden Of The Tax

The impact of a tax on the economic welfare of individuals, showing who ultimately bears the cost of the tax.

Excise Tax

A direct tax placed on manufactured goods, and is often levied at the time of manufacture, rather than at sale.