Regulators use rate of return regulation and price caps because it is difficult to estimate the real average cost of an industry.

Question

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Regulators use rate of return regulation and price caps as mechanisms to control prices and ensure that companies do not exploit their monopoly power, especially when it is challenging to accurately estimate the real average cost of providing a service or product in an industry. These methods help in setting reasonable prices while allowing companies a fair return on their investments.

Regulators Use Rate of Return Regulation and Price Caps Because