Which of the Following Is a Problem That Arises When

question 188

Multiple Choice

Which of the following is a problem that arises when regulations force "natural monopolies," like electric utilities, to charge a price that is equal to their marginal cost (MC) ?

• A) This price will force the firms out of business in the long run.
• B) The firms have an incentive to pad their fixed costs.
• C) When price is equal to MC, new firms will enter the industry and drive up the costs of production.
• D) Both b and c are correct.

---

Definitions:

Expected Return

The forecasted percentage return on an investment, accounting for all possible returns and their probabilities.

Currently Available Information

The latest and most up-to-date data or facts that are accessible and can be used for decision-making processes.

SML

Security Market Line, a graphical representation of the expected return of investments as a function of their risk, as measured by beta.

Vertical Intercept

The point where a graphed line crosses the vertical axis, often used in mathematical functions to determine a starting point.