If Government Regulation Sets the Maximum Price for a Natural

question 17

Multiple Choice

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

• A)earn economic losses.
• B)earn economic profits.
• C)earn zero economic profits.
• D)produce a lower quantity of output than is socially optimal.

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Definitions:

Temporary Surplus

A situation where the supply of a product exceeds demand for a short period, often leading to price reductions.

Permanent Surplus

A situation in which the supply of a particular good or service persistently exceeds demand, often leading to long-term price declines.

Price Support Payments

are subsidies or financial assistance provided by the government to farmers or producers to maintain the market price of an agricultural product above its market equilibrium.

Minimum Wage Law

Minimum Wage Law is legislation that sets the lowest hourly rate that can be paid to workers, aiming to ensure a minimum standard of living for employees.