Which of the following best describes the difference between cost-of-service regulation and rate-of-return regulation?
A. Costs determine prices in cost-of-service regulation and prices are set in rate-of-return regulation so the firm can make a normal rate of return.
B. Costs determine prices in cost-of-service regulation and prices determine costs in rate-of-return regulation.
C. Variable costs determine prices in cost-of-service regulation and prices are set in rate-of-return regulation so the firm can make an economic profit.
D. Regulators determine prices in cost-of-service regulation and market forces determine prices in rate-of-return regulation.
Answer: A
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