Most natural monopolies are regulated at some level by government because:
A)an unregulated natural monopolist would produce an inefficiently low level of output.
B)an unregulated natural monopolist would produce only for government bureaucrats.
C)an unregulated natural monopolist would charge an inefficiently low price in the market.
D)an unregulated natural monopolist would charge an inefficiently high price in the market.
E)an unregulated natural monopolist would produce a large quantity at a high price.

Question

Quizplus · Accepted Answer

An unregulated natural monopolist would charge an inefficiently high price in the market. This is because natural monopolies have high fixed costs and low marginal costs, which means they can produce at lower costs as output increases. Without regulation, the monopolist would maximize profits by charging a price above the marginal cost, leading to allocative inefficiency and harming consumer welfare. Therefore, government regulation is needed to ensure that the natural monopolist charges a price closer to the marginal cost and produces at a level that maximizes welfare.

Most Natural Monopolies Are Regulated at Some Level by Government