Which of the following is not a problem faced by regulators while regulating a natural monopoly such as cable television or electric utility company?
A)Regulators lack sufficient information regarding the monopolists cost structure.
B)Regulation reduces the incentive for the monopolist to reduce costs.
C)Regulation may cause the monopolist to suppress innovation and new product development.
D)Regulation of a monopoly usually leads to a decline in total surplus.

Question

Quizplus · Accepted Answer

This statement is not accurate. When a natural monopoly is regulated, it can lead to an increase in total surplus by ensuring that prices charged by the monopolist are fair and reasonable, enhancing consumer welfare, and promoting economic efficiency. Therefore, D is the answer as the other options represent the actual challenges faced by regulators while regulating natural monopolies.

Which of the Following Is Not a Problem Faced by Regulators