Rate of return regulations encourage monopolists to use:
A)too much capital and too much labour.
B)too much capital and too little labour.
C)too little capital and too much labour.
D)too little capital and too little labour.

Question

Quizplus · Accepted Answer

Rate of return regulations require a firm to earn a specific rate of return on its invested capital. This incentivizes a monopolist to use more capital than it would otherwise use to ensure that it earns the required rate of return, even if that results in the use of too little labor. Therefore, the correct answer is B - too much capital and too little labor.

Rate of Return Regulations Encourage Monopolists to Use