Consider a Natural Monopoly That Has Declining LRAC Over the Entire

question 26

Multiple Choice

Consider a natural monopoly that has declining LRAC over the entire range of the market demand curve.If it is regulated and required to charge a price that is equal to MC,the resulting level of output is

• A)allocatively efficient,and profit is earned.
• B)allocatively efficient,but the firm must be paid a subsidy or it will eventually go out of business.
• C)less than the allocatively efficient level,and profit is zero.
• D)less than the allocatively efficient level,but losses occur.
• E)greater than the allocatively efficient level,but losses occur.

Understand the implications of rent controls and price ceilings on market equilibria and housing quality.

Grasp the economic reasoning behind pricing mechanisms in the market, including the effects of price controls on goods availability.

Recognize the role of non-price factors in rationing goods when price controls are in place.

Analyze the effects of minimum wage laws on the supply and demand for labor.

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