Figure 15-9

question 130

Multiple Choice

Figure 15-9
Figure 15-9 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-9.Why won't regulators require that Erickson Power produce the economically efficient output level?

• A) because there is insufficient demand at that output level
• B) because at the economically efficient output level, the marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit
• C) because Erickson Power will earn zero profit
• D) because Erickson Power will sustain persistent losses and will not continue in business in the long run

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Definitions:

Stripped Bond

A debt security where the principal and regular coupon payments have been separated and are sold as individual securities.

Inflation Premium

The part of the nominal interest rate that represents compensation to the lender for the loss of purchasing power due to inflation.

Fisher Effect

An economic theory stating that the real interest rate is independent of monetary measures, especially the nominal interest rate and the expected inflation rate.

Canada Plus Call

Call provision that compensates bond investors for interest differential, making it unattractive for an issuer to call a bond.