Rate of return regulation is designed to allow a natural monopoly to
A) make an economic profit.
B) make zero economic profit.
C) underestimate its average cost.
D) compete with any firm entering the market.
E) make zero normal profit.

Question

Quizplus · Accepted Answer

Rate of return regulation sets the price so that the natural monopoly makes zero economic profit but earns a fair return on its investment. This allows the natural monopoly to continue operating efficiently without making excess profits that would be unfair to consumers.

Rate of Return Regulation Is Designed to Allow a Natural