When a Regulatory Agency Uses Rate of Return Regulation,the

question 303

Multiple Choice

When a regulatory agency uses rate of return regulation,the

• A) agency is able to eliminate the deadweight loss.
• B) firm's managers have an incentive to inflate the firm's costs.
• C) regulated firm's profit must be maximized for the market to be efficient.
• D) regulated firm must receive a government subsidy.
• E) the agency is using a form of marginal cost pricing.

---

Definitions:

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a certificate or instrument.

Legal Capital

The minimum amount of equity that a company must maintain to protect creditors, as required by law.

Declaration Date

The date on which a company announces its next dividend payment, specifying the dividend amount, ex-dividend date, and payment date.

Board of Directors

A group of individuals elected by shareholders to oversee the management of a corporation, making key decisions and setting policies.