Suppose a manufacturing firm that is about to be regulated faces the following actual and potential production costs: 1) $4,000 before regulation; 2) $4,550 in the future without the regulation; and 3) $5,200 in the future with the regulation. The true cost of the proposed regulation, invoking the with/without principle, is ________.

Question

Quizplus · Accepted Answer

The with/without principle compares the cost of a particular decision or policy with and without the proposed change. In this case, the proposed change is regulation.

The actual cost of production before regulation was $4,000. If regulation were not imposed, the cost of production in the future would be $4,550. With regulation, the cost would be $5,200. Therefore, the cost of the proposed regulation is the difference between the cost with regulation ($5,200) and the cost without regulation ($4,550), which is $650. Thus, the true cost of the proposed regulation is $650.

Suppose a Manufacturing Firm That Is About to Be Regulated