What is a price cap? Why might it be a more effective way of regulating monopoly than rate of return regulation?
What will be an ideal response?
A price cap is a price ceiling, a regulation that sets the maximum price the regulated firm can charge. This type of regulation might be a more effective method of regulation than rate of return regulation because rate of return regulation gives managers the incentive to inflate their costs. Price cap regulation, however, gives the regulated firm the incentive to operate efficiently and not inflate its costs.
You might also like to view...
Other things being equal, a national health insurance program would
A) generate higher life expectancies and lower infant mortality rates. B) generate lower life expectancies and higher infant mortality rates. C) increase total health care expenditures. D) increase the quality of life.
How does the federal government provide public goods and reduce the number of free riders?
a. Requiring tax payments b. Acquiring private firms c. Investing in education d. Protecting patents
In the U.S. tax receipts are almost _____ percent of GDP.
Fill in the blank(s) with the appropriate word(s).
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
A) -1.25. B) elastic. C) Both A and B above. D) Neither A nor B above.