In general,which of the following statements guides policymakers with respect to a natural monopoly? The firm
A)is the best way to produce a given product and should be left alone.
B)will not achieve productive efficiency without regulation.
C)should be taken over by government and run as a crown corporation.
D)should be broken up into a large number of competitive firms.
E)generally needs to be regulated in order to reduce allocative inefficiency.

Question

Quizplus · Accepted Answer

Natural monopolies tend to have high fixed costs and economies of scale, which can make it difficult for new firms to enter the market and compete. This can lead to the natural monopoly having too much market power and charging higher prices than would be optimal for society. Therefore, regulation is often needed to promote allocative efficiency and prevent the abuse of market power. Option A is incorrect because leaving the firm alone can lead to inefficient outcomes. Option B is partially correct in that regulation is often needed, but it does not necessarily mean the firm cannot achieve productive efficiency on its own. Option C is not necessarily the best choice as government-run firms may still face inefficiencies and lack incentives for innovation. Option D may not be feasible or effective in promoting allocative efficiency in some cases.

In General,which of the Following Statements Guides Policymakers with Respect