The Difference Between Cost-Of-Service Regulation and Rate-Of-Return Regulation Is That

Multiple Choice

The difference between cost-of-service regulation and rate-of-return regulation is that

A) the former sets prices based on actual costs, and the latter focuses on setting prices such that the firm earns a normal rate of return.
B) the latter sets prices first, and then the firm must keep costs in line if it wants to earn a profit, and the former sets price high enough to cover costs.
C) the former uses marginal cost pricing and the latter uses average cost pricing.
D) the former uses average cost pricing and the latter uses marginal cost pricing.