What is a natural monopoly and what problem does natural monopoly pose for regulators?
What will be an ideal response?
A natural monopoly is a firm that can supply the market at lower cost than two or more firms. It can do so because it has declining long-run average total cost over the entire range of market output. Because the LRAC is declining, the marginal cost must be below the LRAC. Therefore, if the regulator forces the firm to price at MC to achieve efficiency (such as is done by a perfectly competitive firm), the natural monopolist will fail to cover its total cost. It incurs an economic loss and requires a government subsidy to survive.
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Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is ________
A) cross; positive B) income; positive C) income; negative D) cross; negative
If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then
a. Austrian GNP increases by more than Austrian GDP, because GDP includes income earned by foreigners working in Austria. b. Austrian GNP increases by more than Austrian GDP, because GDP excludes income earned by foreigners working in Austria. c. Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria. d. Austrian GNP increases by less than Austrian GDP, because GDP excludes income earned by foreigners working in Austria.