Under Rate-Of-Return Regulation, Average Cost Pricing

question 113

Multiple Choice

Under rate-of-return regulation, average cost pricing

• A) is inflated so the firm can make economic profits.
• B) includes variable costs but not a cost for capital.
• C) includes what they consider to be a fair rate of return on investment.
• D) includes a cost for capital that generates an above normal rate of return.

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Definitions:

Market Price

This represents the price at which a commodity, security, or other financial instrument is traded on the open market and can be purchased or sold.

Common Stock

Signifies holding stakes in a corporation, which provides owners with the right to vote and a portion of the company's earnings via dividends.

Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company’s earnings.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate if a stock is over or under-valued.