Suppose the Government Imposes Fair-Returns Pricing on a Monopolist

question 137

Multiple Choice

Suppose the government imposes fair-returns pricing on a monopolist.This policy creates incentives for the firm to overinvest in capital.As a result,the firm will have ________.

• A) a strong incentive to minimize costs of producing a given level of output
• B) no incentive to minimize costs of producing a given level of output
• C) a strong incentive to innovate
• D) a strong incentive to produce new goods

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