A Natural Monopoly's Output Is Less If It Is Regulated

question 58

Multiple Choice

A natural monopoly's output is less if it is regulated with

• A) a marginal cost pricing rule than if it is unregulated.
• B) an average cost pricing rule than if it is unregulated.
• C) an average cost pricing rule than if it is regulated with a marginal cost pricing rule.
• D) a marginal cost pricing rule than if it is regulated with an average cost pricing rule.
• E) More information about the firm's demand is needed to determine how its output depends on what regulation it faces.

---

Definitions:

CCA Class

refers to the Capital Cost Allowance Class, a categorization used in Canadian tax to determine the depreciation rate for tax purposes on assets.

Annual Depreciation

The method of allocating the cost of a tangible asset over its useful life on a yearly basis.

Cost of Debt

The effective rate that a company pays on its total debt, reflecting the expense of borrowing funds.

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life.