A problem with average cost regulation of monopoly is that:
A)regulators are overwhelmed by pressure.
B)firms stops maximizing profits.
C)firms cease to minimize costs.
D)firms become less capital intensive.

Question

Quizplus · Accepted Answer

With average cost regulation, the regulator sets a price ceiling at the average cost of the firm. This removes the incentive for the firm to minimize costs, as they will be able to pass on any cost increases to the consumers through the price ceiling. Therefore, firms may cease to minimize costs and potentially become less efficient in their production processes.

A Problem with Average Cost Regulation of Monopoly Is That