Price cap regulation
A) does not provide incentives to firms to minimize their costs because firms cannot change prices.
B) sets the maximum price these firms can charge.
C) gives firms the incentive to exaggerate their costs.
D) Both answers A and C are correct.
E) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

Price cap regulation sets the maximum price that firms can charge, allowing them to keep any profits from reducing costs below this cap, thus providing an incentive to minimize costs.

Price Cap Regulation