The rail system in Metropolis is a natural monopoly. If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?
a. The managers of the rail system will be allowed to adjust marginal cost so that they can get a normal rate of return on capital.
b. The managers of the rail system will be allowed to adjust marginal cost so that they can get a fair profit.
c. The rail system will earn economic profit at that fare.
d. If the government doesn't give the rail system a subsidy to supplement revenue from fares, the system will face continuous economic losses.
e. If the government doesn't give the rail system a subsidy to supplement revenue from fares, fare increases will push marginal cost upward.
Question 2
In the short run, if a firm shuts down, its loss is equal to
a. 0
b. its variable costs
c. its fixed costs
d. fixed costs minus variable costs
e. fixed costs minus total revenue
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