What is the dilemma of regulation in the case of a regulated monopoly?
What will be an ideal response?
When price is set equal to marginal cost to achieve the most efficient allocation of resources there will be a lower price and greater level of output. The regulated monopoly, however, is likely to realize an economic loss with this socially optimal price and require a subsidy from government. In contrast, a “fair-return” price where price equals average cost produces no profits or losses for the regulated monopolist, but results in less output and a higher price than under the socially optimal price. The regulatory body must make a decision about whether to subsidize a monopolist charging the socially optimal price, or accept less output or under allocation of resources and a higher price that results from the fair-return pricing policy.
You might also like to view...
Which of the following statements about the nominal and the real wage rates is correct?
A) The nominal wage rate equals the real wage rate divided by the CPI and then multiplied by 100. B) The nominal wage rate is measured in the dollars of a base year. C) The real wage rate is measured in current year dollars. D) The real wage rate indicates how many goods and services can be purchased with an hour's labor. E) The real wage rate equals the nominal wage rate multiplied by the CPI then divided by 100.
In the personal computer (PC) market in the first half of 2008, Hewlett-Packard maintained its worldwide No. 1 ranking at a market share of 19.1 percent
Dell's market share was 16 percent and Acer held onto third place with a 9.5 percent share, and Lenovo maintained fourth place, with a 7.9 percent share. What is the four-firm concentration ratio in the PC market? A) 60.3 B) 52.5 C) 45 D) 36.5