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.
B
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Tax laws affect
A) economic efficiency but not equity. B) consumption and production, not efficiency and equity. C) both efficiency and equity. D) equity but not economic efficiency.
Why does a network externality arise?
a. Each additional unit of a good sold reduces the value of the previously sold units. b. As more and more units of a good are produced, the average cost declines. c. Consumption of a good by one user does not affect the consumption of subsequent users. d. The firms enjoy economies of scale in the long run. e. Each additional unit of a good sold increases the value of the previously sold units.