Question

A local regulator has calculated the average cost of production for the public water utility. Theregulator 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

Answer 1

Answer:

A. cost-plus regulation

Explanation:

When a local regulator calculates the average cost of production for the public water utility or any other service and allow 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, this is known as cost-plus regulation.

It is usually carried out by the government.