Question

Regulations that permit a regulated firm to

cover its costs and to make a normal level of profit are commonly
referred to as
A. price cap regulations.
B. regulatory capture.
C. profit regulation.
D. costplus regulation.

Answer 1

Cost-plus regulation refers to government setting the price a firm can charge based on accounting costs and adding a normal profit rate, while price cap regulation allows the government to set price levels in advance.

Step-by-step explanation:

Cost-plus regulation refers to government regulating a firm by setting the price that the firm can charge over a period of time, based on the firm's accounting costs and adding a normal rate of profit. On the other hand, price cap regulation is when the government sets a price level several years in advance, and the firm's profitability depends on its ability to produce at lower costs or sell a higher quantity than expected.