If the government wants a natural monopolist to achieve allocative efficency, th
ID: 1191956 • Letter: I
Question
If the government wants a natural monopolist to achieve allocative efficency, the government should
A) Subsidize the firm and require marginal cost pricing. B) Ensure that the firm produces at full capacity. C) Regulate the firm so that is produces the output level at which economic profit is zero. D) Use price ceilings so the firm will earn a normal profit.
If a natural monopoly was broken into several smaller competing firms,
A) Consumers would lose because of less competition. B) Producers would be better off because they would have greater market share. C)Society would be worse off because the economies of scale would be destroyed. D)Workers would be worse off becuause fewer jobs would be available.
Explanation / Answer
1: the government should use price ceilings so the firm will earn a normal profit.
2: societ would be worse off.