One problem with regulating a monopolist on the basis of cost is that:
A)a monopolist is still able to generate excessive economic profits
B)regulators are unable to effectively control prices and/or production
C)a monopolist's costs, by definition, are higher than costs of perfectly competitive firms
D)it does not provide an incentive for the monopolist to reduce its cost

Question

Quizplus · Accepted Answer

Regulating a monopolist based on cost can lead to a situation where the monopolist lacks the incentive to minimize costs, as they can pass these costs onto consumers through higher prices, knowing that their regulated prices will cover these costs. This can result in inefficiency and higher costs than necessary.

One Problem with Regulating a Monopolist on the Basis of Cost