Which of the following statements regarding economic regulation is TRUE?
A) Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return.
B) Rate-of-return regulation has been much more effective than cost-of-service regulation.
C) Economic regulation deals only with rates of return, and not with prices.
D) Economic regulation deals mainly with prices firms charge, but firms can alter their return by altering quality of service, effectively raising the price per constant-quality-unit.
Question 2
In the long run, the number of firms in an industry may change. If the number of firms increases, then
A) the supply curve will shift outward to the right.
B) the demand curve will shift outward to the right.
C) the supply curve will shift inward to the left.
D) the demand curve will shift inward to the left.
