In the US, the main form of regulation has been rate- of- return regulation, which involves restricting the amount of profit a firm can make. This has the major advantage that it encourages firms to find ways of reducing costs.

Question

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Rate-of-return regulation does not necessarily encourage firms to reduce costs because it guarantees a certain profit margin over costs, which can lead to firms inflating their costs to ensure higher revenues.

In the US, the Main Form of Regulation Has Been