What incentive does price cap regulation attempt to give the firm? How does it give the firm this incentive?
What will be an ideal response?
Price cap regulation is intended to motivate the firm to operate efficiently and keep its costs under control. It does so setting the maximum price the company can charge and then allowing the firm to keep part (or perhaps all) of any economic profit it can make if it cuts its costs.
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Which of the following is true of marginal cost?
a. Marginal cost is the cost per unit of output produced. b. Marginal cost is the change in total cost divided by the change in total output. c. Marginal cost curve is negatively sloped at the profit-maximizing level of output. d. Marginal cost is equal to total cost divided by the quantity of output. e. Marginal cost initially increases with an increase in output but subsequently declines.
A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?
a. Total revenue of the company will fall. b. Investment by the company will increase. c. Profit per unit of the product will fall. d. Average profit per unit will increase.