Final answer:
Cost-plus regulation is false in encouraging firms to be efficient as it reduces the incentive to minimize costs and may lead to inflated expenses to increase pricing.
Step-by-step explanation:
The assertion that cost-plus regulation encourages firms to produce as efficiently as possible is false. Under cost-plus regulation, firms are reimbursed for their expenses plus a profit margin. This type of regulation diminishes the incentive for firms to minimize costs because they can pass higher costs on to consumers through increased prices. Moreover, it can create an incentive for firms to inflate their costs deliberately, as they are able to charge more based on the higher expenses they report. This could lead to inefficiencies such as building excessively large factories or maintaining excessive staff levels, with the knowledge that these higher costs will be covered.