Question

1.

What is the definition of the rate base of a regulated natural monopoly?

		The same as the firm's economic profit
		The basic rate charged to customers
		The value of the firm's capital
		The lowest rate it charges for its product

2.

Although mergers of a horizontal nature might be permitted in today's economic climate, what is one reason to not allow the merger?

		The merger would create an oligopoly
		Strong international competition
		One firm is in danger of failing
		Increased efficiency

3.

All except which of the following are examples of capital?

		The money held in a firm's account at a lending institution.
		A shovel used by a road crew.
		The communications system used by the security officers on campus.
		The lecture rooms at your college.

Answer 1

1. answer is A

the monopoly will follow its normal approach to maximizing profits. It determines the quantity where MR = MC. Since the price is above the average cost curve, the natural monopoly would earn economic profits.

2. answer is B Strong international competition

horizontal merger will create oligopoly market as there would two firms are merging and reduce the competiton and increase the effciency of operations. in this situation two firm merges but not fall.

3. answer is A

The money held in a firm's account at a lending institution is financial assets it is not considered as capital or capital formation. shovel, communication system and lecturer rooms are considered as capital and will be used over a several period of time.