Multiple choice – select the correct option
A distinguishing feature of a natural monopoly is that:
- It is the only supplier in a given market
- It will be nationalised
- It will always make losses
- Its average costs rise continuously with output
- Its average costs fall continuously with output
If a monopolist switches from profit maximisation to sales maximisation it will plan to:
- Reduce price
- Increase price
- Reduce output
- Increase MR
- Increase super-normal profits
Price discrimination by a monopolist can only be beneficial if:
- Advertising costs do not rise
- Price elasticities of demand are the same in both markets
- It creates a barrier to entry
- Consumers can move freely from one market to another
- There is no seepage by consumers between markets
Cartels are least likely to be formed when:
- There are no barriers to entry
- The industry is highly concentrated
- There is a weak regulatory regime
- The industry is dominated by a few firms
- Collusion is easy
The profit maximising monopolist will always:
- Make profits
- Derive economies of scale
- Produce at the lowest average total cost
- Produce in the elastic portion of the AR curve
- Produce up to the point where the extra costs of production are less than the extra sales revenue
- Using a diagram, and with reference to an example, explain that is meant by ‘a natural monopoly’.
- To what extent should natural monopolies be regulated?
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