Exhibit 26-4

-Refer to Exhibit 26-4.The problem with average-cost pricing regulation is that once it is in place,there is a tendency for the

Question

Exhibit 26-4
 
-Refer to Exhibit 26-4.The problem with average-cost pricing regulation is that once it is in place,there is a tendency for the

Quizplus · Accepted Answer

Average-cost pricing regulation requires firms to charge prices equal to their average total cost, including a normal rate of return. This means that the ATC (average total cost) curve becomes the firm's pricing curve. However, there are factors that can cause the ATC curve to shift upward, such as an increase in production costs, including wages, materials, and other inputs. If the ATC curve shifts upward, the regulated price may no longer cover the firm's costs, leading to reductions in output or even exit from the market. Therefore, the problem with average-cost pricing regulation is that the ATC curve can shift upwards, making it difficult for firms to continue operating at the regulated price.

Exhibit 26-4 -Refer to Exhibit 26-4.The Problem with Average-Cost Pricing Regulation Is