Question

PLEASE HELP

Why is it in the best interest of the government to regulate natural monopolies?

To allow multiple suppliers access to the market

To gain a share of the profits of the monopoly

To keep costs to a minimum for consumers

To prevent surplus goods and services

Answer 1

The correct answer is: "To allow multiple suppliers access to the market".

A natural monopoly operates in absence of competition. It is a firm that supplies the whole market of a specific product or service. Although such firms usually presents a large capacity and economies of scale, that could allow them to produce at the lowest cost, they do not have incentives to make an effort to become more efficient, because there are no competitors and they would continue serving the whole market and earning large profits even with a low productivy. Natural monopolies protect themselves by fixing entry barriers to prevent the entrance of potential rivals.

If more competitors are allowed into the market this means that companies compete for attracting a number of consumers as large as possible. They have to become as efficient as they can in other to lower their production costs. This would enable them to fix a lower market price for their products and to attract a higher share of buyers. This outcome is also more benefitial for consumers who are able to purchase at a cheaper price.

Answer 2

Good Morning!

To keep costs to a minimum for consumers

In theory, the government's interest in regulating natural monopolies is to meet consumer rights, giving access and lowering costs in order to avoid price abuse.


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