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

---

Definitions:

Turquoise

A blue-to-green mineral that's often used as a gemstone in jewelry and decorative items.

Gallons

A unit of volume used in the United States customary and British imperial systems, used mainly for measuring liquids.

Luncheon

A formal or informal meal taken in the middle of the day, typically involving a variety of foods.

Chef

A professional cook, often the head of a kitchen in a restaurant or hotel.