Use the Following to Answer Questions

question 108

Multiple Choice

Use the following to answer questions:
Figure: Water Works
-(Figure: Water Works) Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If regulators require the water works to charge the price that just covers average total cost, the water works will:

• A) earn profits.
• B) break even.
• C) incur losses.
• D) have a large producer surplus.

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Definitions:

Escalated Commitment

A pattern of behavior in which an individual or group continues to rationalize their decisions, invest additional resources, and follow a failing course of action.

Risky Shift

The tendency for groups to make riskier decisions than the average risk initially advocated by their individual members.

Faulty Hindsight

The misinterpretation or incorrect analysis of past events, often seeing them as more predictable than they actually were.

Previous Sunk Costs

Refers to resources that have already been spent and cannot be recovered.