Price Cap Regulation

question 240

Multiple Choice

Price cap regulation

• A) does not provide incentives to firms to minimize their costs because firms cannot change prices.
• B) sets the maximum price these firms can charge.
• C) gives firms the incentive to exaggerate their costs.
• D) Both answers A and C are correct.
• E) Both answers A and B are correct.

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Definitions:

Investment Projects

Initiatives or plans undertaken by an organization or individual involving the allocation of resources with the expectation of generating future returns.

Salvage Value

The estimated residual value of an asset at the end of its useful life, which can be recovered through disposal or sale.

Pretax Return

Pretax Return refers to the earnings of a company before the deduction of taxes, often used to analyze profitability from core operations.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, calculating the difference between the present value of cash inflows and outflows.