In Practice, Regulatory Boards Try to Set the Price of a Natural

question 32

Multiple Choice

In practice, regulatory boards try to set the price of a natural monopoly so that price covers a normal return on capital investment. As a result:

• A) there is an incentive to use less equipment.
• B) there is an incentive to use more equipment.
• C) the incentive to use equipment stays the same.
• D) the price of equipment should decrease.

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Definitions:

Representativeness Heuristic

A mental shortcut used to make judgments about the probability of an event under uncertainty, based on how similar it is to our typical idea of the event.

Framing

The process of presenting or constructing a concept, idea, or issue in a certain way to influence perception and judgment.

Representativeness Heuristic

A mental shortcut that involves judging the likelihood of an event or situation by comparing it to an existing prototype that already exists in our minds.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses.