If a Regulatory Agency Sets the Price Equal to Marginal

question 180

Multiple Choice

If a regulatory agency sets the price equal to marginal cost for a natural monopoly,the

• A) government might have to provide a subsidy to the firm to keep it in business.
• B) price is the same as the unregulated monopoly price.
• C) firm makes an economic profit, though not the maximum economic profit.
• D) firm makes the maximum economic profit.
• E) firm makes zero economic profit.

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Definitions:

Initial Value Method

An accounting method where investments are recorded at their original cost to the owner at the time of purchase, without subsequent adjustments for market changes.

Equity Method of Accounting

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor’s share of the investee’s income, losses, and dividends received.

Capital Account Balances

The amounts recorded in the capital account of a company or individual, reflecting initial investment plus retained earnings minus any withdrawals.

Liquidating

The process of converting assets into cash or cash equivalents by selling them.