Regulating firms so that they always receive a guaranteed profit rate will lead to greatest efficiency.

Question

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Regulating firms with a guaranteed profit rate may lead to inefficiencies as firms may become complacent and have little incentive to optimize their operations or innovate. It could also undermine competition and stifle consumer choice. Instead, most economists advocate for a market-based approach where firms are subject to market forces and able to compete on price, quality, and innovation to earn their profits.

Regulating Firms So That They Always Receive a Guaranteed Profit