Choose the Statement That Best Describes the Dilemma Facing the Regulator

question 26

Multiple Choice

Choose the statement that best describes the dilemma facing the regulator of a natural monopoly.

• A) marginal- cost pricing leads to profit or losses; average- cost pricing results in allocative inefficiency
• B) there is no dilemma
• C) marginal- cost pricing will result in productive and allocative inefficiency; average- cost pricing will not
• D) both kinds of regulation have the same implications for allocative efficiency.
• E) marginal- cost pricing will result in allocative inefficiency; average- cost pricing leads to profits or losses

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Definitions:

International Monetary Reserves

International monetary reserves are assets held by central banks or monetary authorities in various forms, such as foreign currencies, gold, and Special Drawing Rights (SDRs), used to back the currency and support economic policies.

Domestic Macroeconomic Adjustments

Changes made within a country's economy to address macroeconomic issues such as inflation, unemployment, and economic growth.

Foreign-exchange Reserves

Assets held by a central bank in foreign currencies, which are used to back liabilities on their own issued currency as well as to influence monetary policy.

Pegged Exchange Rate

A currency system where a country's currency value is fixed or linked to another currency or a basket of currencies.