Question

Although companies generally do not wish to be regulated by the government, some monopolists welcome regulation of the industry. Which of the following statements BEST explains why? A) Regulation is rent-seeking activity because once an industry is declared a monopoly, the firm is protected from competition. B) Regulation is x-inefficiency because a monopolist feels the need to waste resources on dealing with government regulators. C) Regulation maximizes profits because the government looks favorably on price discrimination. D) Regulation helps the firm become more efficient because the government prefers to subsidize monopolies.

Answer 1

Companies may welcome regulation of the industry because it protects them from competition, allows for price discrimination, and can encourage efficiency improvements.

Step-by-step explanation:

Regulation of natural monopolies is often welcomed by companies in the industry for several reasons:

1. Regulation protects the monopolist from competition and allows it to maintain its market power. When an industry is declared a monopoly, the firm is protected from potential competitors entering the market and challenging its position.
2. Regulation can maximize profits through price discrimination. Monopolists can take advantage of government regulation by implementing price discrimination, which allows them to charge different prices to different customers based on their willingness to pay.
3. Regulation can help the firm become more efficient. While it is not explicitly mentioned in the provided information, government regulation often includes performance standards and requirements that encourage firms to improve their efficiency and minimize waste.

Answer 2

Some monopolists might welcome regulation by the government because it acts as rent-seeking activity, protecting them from competition, legitimizing their market position, and allowing efficient service delivery to the market.

Step-by-step explanation:

Some monopolists welcome regulation because it can also serve to protect the monopoly from potential competitors, ensuring its market dominance. The best explanation for why some monopolists might welcome regulation is option A) Regulation is rent-seeking activity because once an industry is declared a monopoly, the firm is protected from competition. This means that after receiving regulation, companies might benefit from a form of market protection, as new entrants find it harder to compete with a government-regulated monopoly, which is already established and operating at lower average costs due to economies of scale.

Natural monopolies such as public utilities are commonly regulated to prevent the negative effects of unrestricted monopoly power like excessively high prices or reduced output. By regulating the price and output, the government attempts to ensure that consumers aren't harmed by the monopoly's market power. Therefore, some regulated monopolies might be more willing to accept regulation because it can legitimize their market position and protect them from competition while allowing them to serve the market more efficiently than multiple competitors would.