Question

One reason that government regulation of natural monopolies is essential is A) to ensure that competition continues to flourish. B) to create more opportunities for corporate investment. C) to allow more customer input into methods of production. D) to prevent the monopoly from raising prices uncontrollably.

Answer 1

The essential reason for government regulation of natural monopolies is D) to prevent the monopoly from raising prices uncontrollably, because in a natural monopoly only can exist one supplier, whereby, in the natural monopolies is impossible that exist competitors in the same industry, for that reason the supplier in an industry could abuse of his advantage and his market position by implementing arbitrary high costs to customers. So, with the purpose to prevent that possible unjust and unfair actions, the Government has to regulate the natural monopolies.