Question

6. in the __ method of regulation of public utilities, firms __ in order to lower cost of production.

7.Which of the following illustrates a negative externality?

Question 6 In the method of regulation of public utilities, firms in order to lower cost of production. Please select two correct answers. Select all that apply: O cost-plus; have an incentive to improve technologies of operation O cost-plus; do not have an incentive to improve technologies of operation O price cap; do not have an incentive to improve technologies of operation 0 price cap; have an incentive to improve technologies of operation

Answer 1

Answer 6:

Option B and Option D.

In the cost plus method of regulation of public utilities, firms do not have an incentive to lower their cost of production because prices are higher than the cost of production. On the other hand, in the price cap method of price regulation, firms have an incentive to lower their cost of production to increase their profits because price is fixed by the government and cannot be increased and this calls for lowering the cost in order to increase more profits.

Answer 7:

Option D. In all the examples, the third party is harmed because of the actions of others, thus, it is an example of negative externality.