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

Question

Quizplus · Accepted Answer

Regulating a monopolist on the basis of cost may not provide an incentive for the monopolist to reduce its cost. In fact, a monopolist may not have much incentive to reduce its cost since it has a monopolistic market power and can charge higher prices. Therefore, regulating a monopolist solely on cost may not be effective in promoting efficiency or ensuring lower prices for consumers.

What Is One Problem with Regulating a Monopolist on the Basis