Answered: Suppose that your state is considering…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose that your state is considering a law that would force all monopolies to charge no more than their average total costs (ATC) of production. Which of the following statements correctly explains to your legislator the pros and cons of this approach?

Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the option once to place a check mark. For incorrect answer(s), click the option twice to empty the box.

check all that apply

Pro: this will increase the profit earned by the monopolist.
Con: it is very hard to accurately determine what ATC truly is.
Con: the monopolist will have an incentive to overstate costs.
Pro: the monopolist will have an incentive to lower costs.
Pro: this will reduce deadweight loss by increasing production quantity.
Con: consumer surplus is reduced as producers will increase production and increase price.

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