One of the Practical Difficulties in Regulating a Natural Monopoly

question 59

Multiple Choice

One of the practical difficulties in regulating a natural monopoly using average-cost pricing is:

• A)that the average-cost pricing rule leads to losses which must be subsidized.
• B)that the price ceiling from average-cost pricing is likely to result in shortages.
• C)that the monopoly has no incentive to minimize costs.
• D)it will result in a surplus in the market leading to a drastic fall in the price.

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Definitions:

IPO Pops

The phenomenon where the price of a stock rises significantly above its initial public offering price shortly after it starts trading on the public market.

Secondary Market

This is a market where investors buy and sell securities they already own, as opposed to the primary market where securities are first issued.

Retail Investors

Individual investors who buy and sell securities for their personal accounts, not for another company or organization.

Road Show

A series of presentations by the management of a company looking to issue securities to potential investors, typically conducted across various cities.