What Problem Is Caused by Subsidizing a Natural Monopoly Regulated

question 317

Multiple Choice

What problem is caused by subsidizing a natural monopoly regulated using a marginal cost pricing rule?

• A) The regulated firm ends up earning an economic profit.
• B) Consumers pay too much for the product of the monopoly.
• C) This policy is a two-part tariff, which creates inefficiency.
• D) The taxes required to gain the revenue used as the subsidy result in a deadweight loss that subtracts from gains in efficiency which result from use of the marginal cost pricing rule.
• E) The regulated firm goes out of business if it is subsidized.

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Definitions:

Indicator Variables

Dummy variables used in regression models to encode categorical data into numbers, typically 0 or 1, to include them in statistical analysis.

Number of Hours

The total count of hours measured in a given context, often referring to the duration of events or the amount of time spent on activities.

Nominal Variable

A type of variable that represents categories with no intrinsic ordering or rank among them.

Indicator Variables

Binary variables used in regression analysis, taking the value of either 0 or 1 to denote the absence or presence of a categorical effect.