Managers of a Natural Monopoly Regulated Using Rate of Return

question 187

Multiple Choice

Managers of a natural monopoly regulated using rate of return regulation have an incentive to

• A) exaggerate the firm's costs.
• B) underestimate the firm's costs.
• C) minimize the monopoly's deadweight loss.
• D) make zero economic profit.
• E) exaggerate the firm's profit.

---

Definitions:

Reversing Entries

An accounting method used to reverse journal entries, typically at the beginning of a new accounting period, to cancel adjustments made in the previous period.

Revenue Accounts

Accounts that track the income generated by a company from its normal business operations or other activities.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts.

Prepaid Insurance

An asset account that represents the amount of insurance premium payments made in advance for coverage extending beyond the current accounting period.