Policymakers are discussing various proposals regarding how to deal with natural monopolies. Senator Huff wants to regulate natural monopolies by equating price with average total cost. Huff contends that such a policy will ensure that monopolies make every effort to reduce costs. Senator Puff wants the government to own natural monopolies. Puff argues that government-owned monopolies usually do a better job of holding down costs than privately owned monopolies. Which senator's argument is correct?

Question

Quizplus · Accepted Answer

Both proposals have significant drawbacks and are not necessarily the best ways to deal with natural monopolies. Senator Huff's proposal to equate price with average total cost would not necessarily incentivize natural monopolies to reduce costs and could actually result in higher prices for consumers. Senator Puff's proposal to have the government own natural monopolies could potentially lead to inefficiencies and lack of innovation, as government-owned entities are not subject to the same market pressures as privately owned companies. Therefore, neither senator's argument is completely correct.

Policymakers Are Discussing Various Proposals Regarding How to Deal with Natural