The average-cost pricing policy provides a greater incentive for a regulated monopolist to reduce its production costs.

Question

Quizplus · Accepted Answer

The average-cost pricing policy can actually reduce the incentive for a regulated monopolist to minimize production costs, as the firm is allowed to set prices based on average costs, including a normal rate of return. This means that any cost reductions might not lead to higher profits, reducing the incentive to lower costs.

The Average-Cost Pricing Policy Provides a Greater Incentive for a Regulated