Question

In: Economics

In the Davis & Muehlegger (2010) analysis of pricing above marginal cost under regulation, they observe...

In the Davis & Muehlegger (2010) analysis of pricing above marginal cost under regulation, they observe that

"... decreased consumption along the intensive margin is not costly from the regulated firm’s perspective because the rate base does not depend on the level of natural gas consumption per customer. In short, under traditional rate-of-return regulation a regulated firm attempts to maximize the rate base, and this creates incentive for firms to lobby regulators for low fixed fees.” (p. 803)

In 2-3 sentences, explain what they mean, based on their analysis. Why does traditional ROR regulation provide this incentive?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

In the Davis & Muehlegger (2010) analysis of pricing above marginal cost under regulation, they observe...
In the Davis & Muehlegger (2010) analysis of pricing above marginal cost under regulation, they observe that ... decreased consumption along the intensive margin is not costly from the regulated firm’s perspective because the rate base does not depend on the level of natural gas consumption per customer. In short, under traditional rate-of-return regulation a reg-ulated firm attempts to maximize the rate base, and this creates incentive for firms to lobby regulators for low fixed fees.” (p. 803) In 2-3...
Explain the essential differences between full cost pricing and marginal cost pricing strategies.
Explain the essential differences between full cost pricing and marginal cost pricing strategies.
The situation suggests that the marginal social cost curve for parking is above the marginal private...
The situation suggests that the marginal social cost curve for parking is above the marginal private cost curve and it would be socially preferable to consume less parking and travel to campus by alternative means. Use your knowledge of supply and demand and your creative and critical thinking skills to propose four actions that would reduce total demand for parking on campus. Test your understanding of this module’s material by trying to explain each action using the terminology that we’ve...
Discuss both the full-cost pricing strategy and the marginal-cost pricing strategy and explain how each would...
Discuss both the full-cost pricing strategy and the marginal-cost pricing strategy and explain how each would apply to your health care clinic. How would target costing affect your business?
A variation on cost-plus pricing is time-and-material pricing. Under this approach, two pricing rates are set....
A variation on cost-plus pricing is time-and-material pricing. Under this approach, two pricing rates are set. Explain where this approach is used and identify the steps involved in time-and-material pricing. Also explain what the material loading charge covers and how it is expressed.
Marginal Analysis: Draw and explain the Marginal Benefit (MB) – Marginal Cost (MC) model. Use marginal...
Marginal Analysis: Draw and explain the Marginal Benefit (MB) – Marginal Cost (MC) model. Use marginal analysis to analyze the proper amount of pollution clean-up efforts in the Chesapeake Bay. Make a graph illustrating marginal benefits and marginal costs. Explain the analysis. Why does the intersection between the MB and MC curves illustrate the optimal level of pollution clean-up? The PPF: Draw a Production Possibilities Frontier (PPF) for the production of two goods, machine tools (a capital good) and donuts...
(a) Explain why the marginal cost curve above the average variables cost curve is referred to...
(a) Explain why the marginal cost curve above the average variables cost curve is referred to as the firm’s short run supply curve? ( use both verbal and diagram analysis)
QUESTION 8 For a monopolist: price equals average total cost. price is above marginal revenue. marginal...
QUESTION 8 For a monopolist: price equals average total cost. price is above marginal revenue. marginal revenue equals zero. marginal cost equals zero. QUESTION 9 An example of price discrimination is the price charged for: an economics textbook sold at a campus bookstore. gasoline. theater tickets that offer lower prices for seniors. a postage stamp. QUESTION 10 There is only one gas station within hundreds of miles. The owner finds that if she charges $3 a gallon, she sells 199...
Use marginal analysis (the comparison of additional/marginal benefit with additional/marginal cost) to create some examples of...
Use marginal analysis (the comparison of additional/marginal benefit with additional/marginal cost) to create some examples of your own. Good examples of diminishing returns can be observed from nearly all episodes of the reality TV show "Man v. Food" with Adam Richman or Casey Webb . Find one on the web to use in your essay
Show mathematically that a monopolist always sets its price above marginal cost.
Show mathematically that a monopolist always sets its price above marginal cost.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT