-A Regulated Firm May Have an Incentive to Spend an Inefficiently

question 37

Multiple Choice

-A regulated firm may have an incentive to spend an inefficiently high amount on capital when:

• A)it becomes deregulated.
• B)fair rate of return regulation is used.
• C)regulators set price equal to marginal cost.
• D)it is part of a monopolistically competitive industry.
• E)it is allowed to charge a monopoly price.

---

Definitions:

Arbitrage Profit

Earnings generated by exploiting the price differences of identical or similar financial instruments on different markets or in different forms.

Oil Futures

Oil futures are contracts to buy or sell oil at a predetermined price on a specified future date, used for hedging or speculation on oil price movements.

Risk-Free Rate

The rate of return on an investment with no risk of financial loss, typically associated with government bonds.

Oil Futures

Contracts to buy or sell oil at a predetermined price on a specified future date, used as a financial instrument for hedging or speculative purposes.