A Natural Monopoly's Output Is Less If It Is Regulated

question 58

Multiple Choice

A natural monopoly's output is less if it is regulated with

• A) a marginal cost pricing rule than if it is unregulated.
• B) an average cost pricing rule than if it is unregulated.
• C) an average cost pricing rule than if it is regulated with a marginal cost pricing rule.
• D) a marginal cost pricing rule than if it is regulated with an average cost pricing rule.
• E) More information about the firm's demand is needed to determine how its output depends on what regulation it faces.

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Definitions:

Internal Rate Of Return

A financial metric used to evaluate the profitability of an investment, calculated as the discount rate that makes the net present value (NPV) of all cash flows from the investment equal to zero.

Discount Factor(s)

A multiplier for determining the present value of future cash flows or other investments, reflecting the time value of money.

Simple Rate Of Return

A method to calculate the profitability of an investment by dividing the annual incremental net operating income by the initial investment cost.

Straight-Line Depreciation

A method of calculating the depreciation of an asset by evenly spreading its cost over its useful life.