Which of the following types of economic regulation is most likely to encourage firms to inflate their costs?
A) price cap regulation
B) rate of return regulation
C) cartel regulation
D) earnings sharing and price cap regulation

Question

Quizplus · Accepted Answer

Rate of return regulation incentivizes firms to increase their costs because they are allowed to pass those costs on to consumers and receive a higher rate of return on their investment. Therefore, firms have an incentive to inflate their costs in order to increase their profits.

Which of the Following Types of Economic Regulation Is Most