If a Government Regulates a Firm with Increasing Returns to Scale

question 4

Multiple Choice

If a government regulates a firm with increasing returns to scale for all levels of output:

• A)Average cost pricing results in economic losses; a firm will need an additional subsidy to cover its fixed costs to prevent it from leaving the industry.
• B)Marginal cost price regulation results in economic losses for the firm and a positive DWL.
• C)Average cost pricing results in zero economic profit but a positive DWL.
• D)Average cost price regulation allows the firm to make a positive economic profit but eliminates any DWL.
• E)None of the above

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Definitions:

Functional Structure

A type of organizational structure where the company is divided into departments or teams based on specialized functions, such as marketing, finance, or production.

Team-Based Structure

A team-based structure in an organization is a framework that emphasizes teamwork, with employees grouped into project teams or work-groups that operate semi-autonomously to accomplish specific tasks.

Structural Features

Refers to the inherent characteristics or properties that define the composition or arrangement of a system or entity.

Organizational Structure

The system of tasks, workflows, reporting relationships, and communication channels that dictate how an organization's activities are coordinated and managed.