What problem is caused by subsidizing a natural monopoly regulated using a marginal cost pricing rule?
A) The regulated firm ends up earning an economic profit.
B) Consumers pay too much for the product of the monopoly.
C) This policy is a two-part tariff, which creates inefficiency.
D) The taxes required to gain the revenue used as the subsidy result in a deadweight loss that subtracts from gains in efficiency which result from use of the marginal cost pricing rule.
E) The regulated firm goes out of business if it is subsidized.
D
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When the social cost of production is greater than the private cost, we have a
a. positive externality b. negative externality c. public good d. private good e. positive spillover
Refer to the game between James and Theodore depicted in Figure 12.1. Which of the following is true?
A. If James chooses Up, Theodore's best response is to choose Left.
B. If James chooses Down, Theodore's best response is to choose Right.
C. If Theodore chooses Left, James's best response is to choose Up.
D. If Theodore chooses Right, James's best response is to choose Down.