If a Public Utility Is Subject to Average-Cost Pricing Regulation

question 117

Multiple Choice

If a public utility is subject to average-cost pricing regulation, what can we conclude?

• A) It will produce the socially efficient level of output.
• B) It will earn an above-normal rate of return.
• C) It will suffer economic losses without a subsidy.
• D) It will earn a normal rate of return.

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Definitions:

Beginning Assets

The value of all assets owned by a company at the start of a financial accounting period.

Ending Liabilities

The total amount of obligations and debts a company has at the end of an accounting period.

Owner's Equity

The total value of a business owned by its owners, calculated as the company's assets minus its liabilities.

Additional Investments

Funds contributed by the owners or shareholders of a company to the business above the initial investment amount.