In regulated monopolies, such as electric utility companies, there is evidence regulation provides: A. incentives to underinvest in capacity when the allowed rate of return is greater than the firm’s true cost of capital. B. incentives to overinvest in capacity when the allowed rate of return is greater than the firm’s true cost of capital. C. incentives to underinvest in capacity when the allowed rate of return is lower than the firm’s true cost of capital. D. incentives to overinvest in capacity when the allowed rate of return is lower than the firm’s true cost of capital.

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