Under Incentive Regulation

question 25

Multiple Choice

Under incentive regulation,

• A)a firm cannot make a loss.
• B)the regulated price is only imperfectly related to average total cost.
• C)the firm has an incentive to raise revenue.
• D)the regulated price is directly related to average variable cost.
• E)if a firm does poorly, it will get regulatory relief.

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Definitions:

Discount Factor

A multiplier used in discounted cash flow (DCF) analysis to calculate the present value of future cash flows, accounting for time value of money.

Salvage Value

The estimated residual value of an asset at the end of its useful life, often considered in depreciation calculations.

Cash Operating Costs

The expenses directly associated with the day-to-day operations of a business, excluding non-cash items like depreciation.

Payback Period

The duration of time it takes for an investment to generate cash flows sufficient to recover its initial cost.