Why Is It Important for the Government to Regulate Natural Monopolies?

Why is it important for the g e precisewherenment to regulate inhering monopolies? A natural monopoly arises where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors. This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples complicate public utilities such as water services and electricity. It is very expensive to build transmission networks (water/gas pipelines, electricity and surround lines); therefore, it is unlikely that a potential competitor would be instinctive to make the capital investment needed to even raise the monopolists market. Gosport Ferry is an example of a natural monopoly. In these cases, economists have argued that enactment may be appropriate. Government regulation can take many approach patterns, but all claim putting limits on what a business (or consumer) can do. certain activities, costs, or products become illegal and others become mandatory. The ideal form of regulation for a monopoly would be to force it to set its price equal to its marginal cost.

Forced to price as if it were a price taker, the monopoly should find it profitable to increase output to the economically efficient level. However overheads may increase and if the price is wintry by the government then the businesses profit margins will drop-off and then the standard of the service/good may fall. In some cases, monopolies are essential in purchase orderliness to press down cost and save space. For instance, water and galvanizing companies have natural monopolies because it would be too expensive for businesses to build several pipelines or power lines. Also, some monopolies prevent the destruction of the environment, since multiple competing electrical companies would have to destroy more land in order to have multiple power lines owned by divulge companies. Therefore it... If you want to get a full essay, order it on our website: Orderessay

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