Question: To provide incentives for increased efficiency, several regulatory agencies have eliminated ceilings on the profits of regulated firms but instead put caps on their prices.

To provide incentives for increased efficiency, several regulatory agencies have eliminated ceilings on the profits of regulated firms but instead put caps on their prices. Suppose that a regulated firm manages to cut its prices in half, but in the process it doubles its profits. Should rational consumers consider this to be a good or a bad development? Why?

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