If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit. How are prices usually set in natural monopoly markets in the United States?
A) Natural monopolies are privately owned and are allowed to set their own prices. Government regulation of the firms would result in greater deadweight losses.
B) Local or state regulatory commissions usually set prices for natural monopolies.
C) Natural monopolies are privately owned, but prices proposed by the firms must be approved by the Antitrust Division of the Department of Justice.
D) Each natural monopoly is made a public franchise. The public franchise is then required to set its price equal to its marginal cost.
B
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Which of the following is TRUE for a firm in the long run?
A) Variable costs will initially increase and then decrease. B) The law of diminishing marginal product holds. C) All costs are variable costs. D) Variable costs will equal marginal cost at all output levels.
The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the
A) open-economy effect. B) federalism effect. C) Ricardian equivalence theorem. D) interest-rate effect.