Firms Operating Under Cost-Plus Regulation Have an Incentive to Generate

Multiple Choice

Firms operating under cost-plus regulation have an incentive to generate high costs by building huge factories or employing lots of staff,

A) because doing so creates efficiencies and innovation.
B) because the market changes dramatically and they have incentive to meet new demand.
C) because this will reduce the firm's costs more quickly and it can make a high level of profit.
D) because what they can charge is linked to the costs they incur.