The Rail System in Metropolis Is a Natural Monopoly

question 19

Multiple Choice

The rail system in Metropolis is a natural monopoly.If the governmentregulates the system by setting the fare equal to marginal cost, which of thefollowing will be true?

• A)The managers of the rail system will be allowed to adjust marginal cost so that they can get a normal rate
• Of return on capital.
• B)The managers of the rail system will be allowed to adjust marginal cost so that they can get a fair profit.
• C)The rail system will earn economic profit at that fare.
• D)If the government doesn't give the rail system a subsidy to supplement revenue from fares, the system
• Will face continuous economic losses.
• E)If the government doesn't give the rail system a subsidy to supplement revenue from fares, fare
• Increases will push marginal cost upward.