Rate of return regulation can end up serving the self-interest of the firm if
A)there is a great demand for the good.
B)there is a competitive struggle to determine which firms will supply the market.
C)the regulated firm overstates its costs of production.
D)price is set at average total cost.
E)the rate is set too low.

Question

Quizplus · Accepted Answer

If the regulated firm overstates its costs of production, it can receive a higher rate of return than it actually deserves. This serves the self-interest of the firm, but is not in the best interest of consumers or the broader economy.

Rate of Return Regulation Can End Up Serving the Self-Interest