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:

Net Income

The profit a company retains after all financial obligations, like costs and taxes, are subtracted from its total income.

Cost Method

An accounting method used to value inventory or investments at their original purchase cost.

Equity Method

An accounting technique used by a company to record its investment in another company.

Unrealized Gain/Loss

A profit or loss that results from holding an investment that has not yet been sold, and thus, the gain or loss is not reflected in the financial statements.