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.

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Definitions:

Unconditioned Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a response without any need for learning.

CS Preexposure Effect

The phenomenon where prior exposure to a conditioned stimulus without the unconditioned stimulus can inhibit the formation of a conditioned response when both are later paired.

Aversion

A strong dislike or disinclination toward something often because of anticipated negative consequences or outcomes.

Shock

A sudden and often distressing stimulus or event, which can be used in experiments as a form of aversive conditioning.