Under rate of return regulation, a natural monopoly
A) has an incentive to inflate its costs.
B) has an incentive to deflate its costs and capture more of the market.
C) makes an economic profit.
D) sets price equal to marginal cost.

Question

Quizplus · Accepted Answer

Under rate of return regulation, a natural monopoly is allowed to earn a specified rate of return on its investments. This can incentivize the monopoly to inflate its costs to increase its allowed revenue and profits.

Under Rate of Return Regulation, a Natural Monopoly