Question

true or false: over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations.

Answer 1

True. Internet service providers (ISPs) have a strong incentive to lower costs when subject to average-cost pricing regulations.

Step-by-step explanation:

True. According to price cap regulation, the regulator sets a price that the internet service provider (ISP) can charge over a few years, often declining slightly over time. If the ISP can find ways to reduce costs more quickly than the price caps, it can make high profits. Therefore, the ISP has a strong incentive to lower costs when subject to average-cost pricing regulations.

Answer 2

True, ISPs have a strong incentive to lower costs under average-cost pricing regulations due to the structure of price cap regulation that rewards cost efficiency with higher profits.

Step-by-step explanation:

The statement that over time, the Internet Service Provider (ISP) has a very strong incentive to lower costs when subject to average-cost pricing regulations is true. Under price cap regulation, which became more common in the 1980s and 1990s, regulators set a price that the firm can charge that often declines over time. If ISPs can lower their costs faster than the decreasing price caps, they have the opportunity to realize higher profits. However, if they fail to reduce costs adequately, they risk suffering losses. Such regulatory constraints essentially motivate ISPs to innovate and operate more efficiently to maintain profitability.