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

Question

Quizplus · Accepted Answer

Policymakers generally believe that natural monopolies need to be regulated in order to reduce allocative inefficiency. This is because in a natural monopoly, the cost of production declines as the output increases, leading to a situation where the monopoly may produce less than the socially optimal quantity and charge a price that is higher than the cost of production. Regulation can correct these market failures and ensure that monopolies produce at the socially optimal level. Breaking up the monopoly or taking it over by the government are also options, but they are not as commonly considered as regulatory intervention. Leaving the natural monopoly alone could result in an inefficient outcome for consumers. However, it is not necessarily true that regulation is required for achieving productive efficiency.

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