Suppose That a Regulated Industry Experiences an Increase in the Price

question 222

Multiple Choice

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. Which of the following statements is true?

• A) Under both the capture theory and the share-the-gains, share-the-pain theory profits will decrease.
• B) An increase in price will occur quicker in the share-the gains, share-the-pain theory than the capture theory.
• C) An increase in price will occur quicker in the capture theory than the share-the-gains, share-the-pain theory.
• D) In the capture theory there will be an increase in price but not in the share-the-gains, share-the-pain theory.

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Definitions:

Least-squares Regression

A method in statistics for finding the optimal line of fit by minimizing the sum of the squared deviations between real and estimated values.

Maintenance Cost

The expenses incurred to keep machinery, equipment, or buildings in operating condition and repair.

Machine-hours

An indicator of the duration for which equipment is utilized in the manufacturing process, commonly employed for distributing manufacturing overhead costs.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating the potential profitability of products.