This paper is an analysis of how a firm behaves in the face of uncertainty about demand and cost conditions and a known constraint on the rate of return it is allowed to earn. Under these conditions it is improbable that regulation could force a monopoly to make competitive investment and output...

The purpose of this paper is to formulate the implications of finance theory for rate of return regulation. A variety of problems in finance and the law and economics of regulation are reviewed. Also, a regulatory procedure based on finance theory is proposed for practical use.