For a monopolist facing a downward-sloping average cost curve,under cost-plus regulation,there is an incentive for this monopolist to
A) raise market price.
B) increase output.
C) reduce the cost of production even further.
D) set price equal to marginal cost.
E) inflate costs.

Question

Quizplus · Accepted Answer

Under cost-plus regulation, the monopolist is allowed to charge a price that covers costs plus a guaranteed profit margin. This creates an incentive to inflate costs to increase the allowable price and profit.

For a Monopolist Facing a Downward-Sloping Average Cost Curve,under Cost-Plus