A monopolist has no incentive to minimize its costs of production when:
A)a regulatory agency imposes an efficient regulatory mechanism.
B)it is unregulated.
C)the regulatory agency imposes rate- of- return regulation.
D)the regulatory agency imposes MC pricing.

Question

Quizplus · Accepted Answer

Rate-of-return regulation allows a monopolist to set prices that cover its costs plus a predetermined rate of return. This can reduce the incentive for the monopolist to minimize costs, as higher costs can be passed on to consumers in the form of higher prices, ensuring the monopolist still achieves its allowed rate of return.

A Monopolist Has No Incentive to Minimize Its Costs of Production