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.

---

Definitions:

Chi-square Statistic

A measure used in statistics to assess the goodness-of-fit between observed frequencies and expected frequencies based on a theoretical distribution.

Obtained Value

The actual value or result achieved from a statistical test or experiment.

Amortized

The process of paying off a debt through regular payments that cover both principal and interest.

Principal Balance

The outstanding amount of a loan or mortgage that remains to be paid, not including interest.