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105.
In Figure 27.2, profit regulation will lead the natural monopoly to produce
106.
Which of the following is true about this firm?
107. One In the News article is titled "Bell Monopolies Push to Disconnect Competition." If rivals are required to
pay an access fee to the local phone monopoly in order to enter a market and the fee is high enough, the fee
108. One In the News article says that when JetBlue "… comes to town, fares go down … " If entry barriers are
low enough, a market
109. According to "Sleep Rules Raise Trucking Costs," in 2013 the Federal Motor Carrier Safety Administration
estimated the new rules regulating the transportation industry would cost trucking companies about $2 billion.
What benefits did the government expect from the costly regulations?
A. Reduced highway fatalities.
110. According to the article "Financial Woes Heating Up," California utilities
111. The "JetBlue Effect" has caused all of the following except
A. A decrease in fares.
112. The concept of laissez faire calls for government intervention if market failure is evident.
113. The term market failure means the market mechanism has not generated the best possible mix of output.
114. The argument for government intervention implies that government regulation can improve market outcomes.
115. Government regulation is designed to change both the structure of an industry and the behavior of firms in
the industry.
116. A natural monopolist can produce total industry output more efficiently than several smaller but
competitive firms.
TRUE
117. Unregulated natural monopolists produce suboptimal rates of output.
118. Marginal cost pricing implies a loss on every unit of output produced by natural monopoly.
119. The major problem with price efficiency regulation is that the natural monopolist loses money or earns negative
profits.
120. It is not necessary to offer a subsidy in order to make price efficiency regulation viable in the long run.
121. Eliminating economic profit of a natural monopolist may be justifiable on the basis of society's equity goal.
122. Price regulation of a natural monopoly may require subsidies.
123. Profit regulation is desirable because if a firm is permitted a specific profit rate, it has an incentive to limit costs.
124. Regulated monopolies that are allowed a specific profit rate have an incentive to hold down costs.
125. Regulation of the quantity produced by a monopolist typically has no impact on the quality of the product.
126. If government intervention fails to improve upon market outcomes, this is known as market failure.
127. Deregulation implies that government failure is worse than the market failure that regulation is designed
to correct.
128. Government failure can never be worse than the market failure it attempts to correct.
129. The argument for regulation is that markets can generate imperfect outcomes, while the argument for
deregulation is that government sometimes worsens market outcomes.
130. All of the costs associated with regulation are borne by the firms being regulated.
131. The costs associated with regulation are a source of government failure.
132. The administrative costs of regulation include the opportunity costs of the factors of production used
by government to administer the regulations.
TRUE
133. The human and capital resources used by businesses to satisfy regulatory requirements are known as
compliance costs.
134. The loss of utility associated with an inferior mix of output because of poorly designed regulations is known as
regulation costs.
FALSE
135. The marginal benefits of regulation should exceed the marginal costs of regulation if additional regulations
are to be imposed.
136. Regulatory intervention must balance the anticipated improvements in market outcomes against the economic
costs of regulation.
137. Deregulation in railroads, airlines, and telephone service has generally resulted in higher prices.
138. The gap between long-distance telephone rates and local telephone rates widened after long-distance
service was deregulated.
139. Deregulation of the telephone industry has reduced price competition and the volume of telephone service,
ceteris paribus.
140. Initially the number of airline firms fell in response to deregulation.
141. In industries where government regulates price, individual firms often engage in product differentiation.
142. In response to deregulation, the quality and variety of airline services rose.
143. One consequence of airline deregulation in the 1980s was an increased concentration ratio.
144. When profits are regulated, monopolists are likely to increase their fixed costs.
145. Deregulation of the railroad, airline, and electricity industries has yielded substantial benefits: more competition,
lower prices, and improved services.
146. Explain the difference in focus between government regulation and government antitrust policy.
147. What is the main structural advantage of a natural monopoly? What is the price-output combination of an
unregulated natural monopoly?
148. Describe how the government should set a monopolist's price to ensure allocative efficiency. What is
the problem with setting the price at this level?
149. State the advantage and the disadvantage of output regulation.
150. Discuss the effects of technological change on the elimination of natural monopolies.
151. Discuss specific cases that lead to an increase in the concentration and market power from deregulation.
Chapter 13 Test Bank Summary
Category
# of Questions
AACSB: Analytic
38
AACSB: Reflective Thinking
113
Accessibility: Keyboard Navigation
132
Blooms: Analyze
14
Blooms: Apply
24
Blooms: Create
2
Blooms: Remember
37
Blooms: Understand
74
Difficulty: 01 Easy
37
Difficulty: 02 Medium
76
Difficulty: 03 Hard
38
Learning Objective: 13-01 The characteristics of natural monopoly.
36
Learning Objective: 13-02 The regulatory dilemmas posed by natural monopoly.
48
Learning Objective: 13-03 The costs associated with regulation.
36
Learning Objective: 13-04 How deregulation has fared in specific industries.
31
Topic: ANTITRUST VS. REGULATION
16
Topic: DEREGULATION IN PRACTICE
44
Topic: IN THE NEWS
5
Topic: NATURAL MONOPOLY
23
Topic: REGULATORY OPTIONS
42
Topic: THE COSTS OF REGULATION
21
