Regulation of a Natural Monopoly Will Maximize the Sum of Consumer

question 57

Multiple Choice

Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if the firm is regulated with

• A)an average cost pricing rule.
• B)a rate of return regulation.
• C)a price cap.
• D)capture theory.
• E)a marginal cost pricing rule.

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Definitions:

Project Profitability Index

A financial metric used to analyze the potential return of an investment project considering its present value of cash inflows and initial investment.

Investment Required

Investment required refers to the total amount of capital needed to undertake a project, start a new business, or make a significant purchase.

Profitability Index

A financial tool used to measure the relative profitability of an investment, calculated as the present value of future cash flows divided by initial investment.

Internal Rate Of Return

A discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.