Homework answers / question archive / a) Under traditional rate of return regulation, would regulated firms prefer rapid rates of depreciation or slow rates of depreciation? Explain why! b) Why could it be problematic if a regulator imposes marginal cost pricing when regulating an industry characterized by economies of scale and ever-increasing returns to scale? What other approaches could the regulator use instead to accomplish as efficient resource utilization as possible in this industry? 

a) Under traditional rate of return regulation, would regulated firms prefer rapid rates of depreciation or slow rates of depreciation? Explain why! b) Why could it be problematic if a regulator imposes marginal cost pricing when regulating an industry characterized by economies of scale and ever-increasing returns to scale? What other approaches could the regulator use instead to accomplish as efficient resource utilization as possible in this industry? 

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a) Under traditional rate of return regulation, would regulated firms prefer rapid rates of depreciation or slow rates of depreciation? Explain why!

b) Why could it be problematic if a regulator imposes marginal cost pricing when regulating an industry characterized by economies of scale and ever-increasing returns to scale? What other approaches could the regulator use instead to accomplish as efficient resource utilization as possible in this industry?