When regulated using rate of return regulation,who benefits from the practice of some natural monopolies to count sumptuous offices,free baseball tickets,golf excursions,and limousines as costs of production?
A) stockholders
B) managers of the monopoly
C) customers of the monopoly
D) regulators of the industry
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When a natural monopoly is regulated using rate of return regulation, the managers of the monopoly benefit from counting sumptuous offices, free baseball tickets, golf excursions, and limousines as costs of production. This is because the higher the costs, the higher the rate of return allowed by the regulator, which translates into greater profits for the managers. Stockholders may also benefit indirectly from higher profits, but they may not have direct control over the day-to-day operations of the monopoly. Customers of the monopoly may be harmed by higher prices resulting from inflated costs, while regulators may be swayed by the monopoly's lavish spending and not act in the best interest of customers.

When Regulated Using Rate of Return Regulation,who Benefits from the Practice