1)What conflicts of interest can arise between managers and stockholders?

2)Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

a. True

b. False

3)When a monopolist increases the quantity that it sells all else equal total revenue increases which is called the output effect.

a. True

b. False

1)The conflict of interest between managers and stockholders is known as the agency problem. In general, the agency problem takes place when the agents do not act in the best interests of principals. Hence, according to this theory, the conflict may arise between managers which are the agents and stockholders which are principals. This conflict is usually caused by the fact that managers do not try to maximize the stockholder's wealth which is typically the most important interest of the investors. It is often observed that the managers focus on their personal benefits or short-term goals instead of actions to continuously increase the company's value. Sometimes the management of a company lacks the motivation to achieve stockholders' goals. These are some of the basic conflicts of interest that can arise between these two parties.

2)This statement is true.

A natural monopoly is a type of market structure that only has one supplier in the industry. A natural monopoly is characterized by the high barriers to entry that are sometimes imposed by the government. The high barriers to entry are caused by the high infrastructural costs associated with the supply of the goods. In this type of market structure, the supplier faces a declining average total cost curve. That is to say, the average total cost decreases as the quantity produced increases. This means that it is very costly and also inefficient to have a large number of competitors. Therefore, market efficiency is achieved by only having one supplier in the industry. A few examples of natural monopolistic industries are water services, electricity grid, and gas networks.

3)

True

The statement 'When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output effect' is true. It is because a monopolist is a single seller in the market and does not have to worry about whether the increased output would be purchased by consumers or not at a particular price level. If there is enough demand in the economy, then an increase in the quantity by a monopolist would result in an increase in the total revenue. This effect is known as output effect.