If a Monopolist's Production Process Has Economies of Scale and Average

question 67

Multiple Choice

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

• A)the government could set price equal to marginal cost and subsidize the monopoly.
• B)the government should not offer a subsidy, since the monopoly can make a profit setting price equal to marginal costs.
• C)if the government sets price equal to average cost, the monopoly will go out of business.
• D)the government cannot regulate price.

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Definitions:

Promissory Note

A financial document in which one entity guarantees to pay a certain amount of money to another, either when asked or at an agreed-upon date in the future.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Canadian Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, calculated by Statistics Canada.

Annual Rate of Inflation

The percentage increase in the cost of goods and services over a one-year period.