A local regulator has calculated the average cost of production for the public water utility. The regulator has allowed an adjustment for the normal rate of profit the firm should expect to earn, and then set the price that consumers can be charged accordingly. In this instance, the regulator has used which of the following?
A) cost-plus regulation
B) cost-plus analysis
C) price-cap regulation
D) market-price analysis

Question

Quizplus · Accepted Answer

The regulator has used cost-plus regulation, which involves calculating the cost of production and then adding a normal rate of profit to set the price. This method ensures the company can cover its costs while earning a reasonable profit.

A Local Regulator Has Calculated the Average Cost of Production