Under Rate of Return Regulation, a Natural Monopoly

question 442

Multiple Choice

Under rate of return regulation, a natural monopoly

• A) has an incentive to inflate its costs.
• B) has an incentive to deflate its costs and capture more of the market.
• C) makes an economic profit.
• D) sets price equal to marginal cost.

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Definitions:

Crowding Out

A situation in economics where increased government spending reduces private sector investment or spending due to higher interest rates.

Opportunity Cost

The financial impact of bypassing the next most favorable choice in a decision.

Transfer Payments

These are payments made by the government to individuals or other entities without the government receiving any goods or services in return, such as welfare checks.

Government Budget Deficit

A situation where the government's expenditures exceed its revenues over a specified period of time, leading to borrowing or debt accumulation.