This paper addresses the challenge of regulating a monopolistic firm whose costs are unknown to the regulator. The regulator aims to maximize social welfare, which is defined as the sum of consumers' surplus and the firm's profit. The optimal regulatory policy involves setting prices and subsidies as functions of the firm's cost report, while ensuring that the firm has no incentive to misrepresent its costs. The paper derives the optimal policy and analyzes its properties, including the impact of the regulator's prior information about the firm's costs. The optimal policy is shown to depend on the regulator's information about costs and to maximize social welfare under the constraints of asymmetric information. The paper also discusses special cases where the firm's costs are known to be either fixed or marginal, and provides examples to illustrate the optimal regulatory policies in these scenarios.This paper addresses the challenge of regulating a monopolistic firm whose costs are unknown to the regulator. The regulator aims to maximize social welfare, which is defined as the sum of consumers' surplus and the firm's profit. The optimal regulatory policy involves setting prices and subsidies as functions of the firm's cost report, while ensuring that the firm has no incentive to misrepresent its costs. The paper derives the optimal policy and analyzes its properties, including the impact of the regulator's prior information about the firm's costs. The optimal policy is shown to depend on the regulator's information about costs and to maximize social welfare under the constraints of asymmetric information. The paper also discusses special cases where the firm's costs are known to be either fixed or marginal, and provides examples to illustrate the optimal regulatory policies in these scenarios.