Under rate-of-return regulation, the price is set so that

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Under rate-of-return regulation, the price is set so that the firm earns a normal rate of return on its investment. This means that the firm is able to recover its costs and earn a reasonable profit, but is not allowed to earn excessive profits or exploit its monopoly power. The goal of rate-of-return regulation is to provide incentives for efficient production and investment, while also protecting consumers from excessive prices and monopoly power.

Under Rate-Of-Return Regulation, the Price Is Set So That