If a public utility is subject to average-cost pricing regulation,it will:
A) earn a normal rate of return.
B) produce the socially efficient level of output.
C) suffer economic losses without a subsidy.
D) earn an above-normal rate of return.

Question

Quizplus · Accepted Answer

Under average-cost pricing regulation, a public utility is allowed to set prices equal to average total costs, enabling it to cover all its costs, including a normal profit, thus earning a normal rate of return.

If a Public Utility Is Subject to Average-Cost Pricing Regulation,it