If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price:
A. at which the marginal cost curve intersects the demand curve.
B. at which marginal revenue is zero.
C. at which the average total cost curve intersects the demand curve.
D. that corresponds with the equality of marginal cost and marginal revenue.
Answer: A
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Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20 percent, the quantity of oil supplied will increase
A) by 200 percent. B) by 20 percent. C) by 2 percent. D) by 0.2 percent.
Forward contracts are often illiquid because
A) any capital gains on them are heavily taxed, making investors reluctant to sell them. B) government regulation has not provided for a secondary market in them. C) they generally contain terms specific to the particular buyer and seller. D) the brokerage fees involved in buying and selling them are very high.