Rate of return regulation, as currently applied to many natural monopolies such as public utilities,
A) generally involves the use of price caps.
B) gives the firms an incentive to inflate their costs.
C) gives the firms an incentive to cut their costs as much as possible.
D) generally keeps their prices higher than if they were unregulated monopolists.

Question

Quizplus · Accepted Answer

Rate of return regulation allows firms to set prices that cover their costs plus a guaranteed return on investment. This can incentivize firms to inflate costs to increase their allowable revenue.

Rate of Return Regulation, as Currently Applied to Many Natural