Suppose that government regulators required a natural monopoly to charge a price equal to the marginal cost of the last unit produced. Which of the following would then be true?
a. The natural monopoly would earn zero economic profits but consumers would benefit from the low regulated price. The low price would sustain long-run production of the firm.
b. The natural monopoly would be allocatively efficient but would suffer economic losses. It would be unable to sustain itself in the long run.
c. The natural monopoly would be allocatively efficient and would earn positive economic profits. Consumer surplus would increase significantly.
d. The natural monopoly would be allocatively inefficient but earn positive economic profits. Consumer surplus would reduce significantly.
b
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Of the following methods that banks might use to reduce moral hazard problems, the one not legally permitted in the United States is the
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Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. WithFilterWithoutFilterGains to Erie$200$400Fisherman$180$50Bird Watchers$130$25The cost (in thousands of dollars) of the filter to Erie Textiles is ________, and the net benefit (in thousands of dollars) of the filter to the fishermen and bird watchers is ________.
A. $200; $75 B. $200; $235 C. $310; $200 D. $400; $310