Question

If government regulators guarantee a natural monopolist that it will earn normal profits, then the monopolist willa) achieve resource-allocative efficiency.b) charge a price above average total cost.c )produce a quantity of output at which marginal revenue equals price.d) none of the above

Answer 1

A natural monopolist will have little to no motivation to keep its expenses in check if government regulators ensure that it will make typical profits.

An individual, organization, or business that completely dominates the market for a certain commodity or service is known as a monopolist. A monopolist is likely to support legislation that strengthens monopolies since it provides them more authority. Due to the lack of competition, a monopolist has no motivation to develop their product. Instead, they are driven by a desire to preserve the monopoly. Contrarily, a government-granted monopoly or legal monopoly is approved by the state, frequently to encourage investment in a hazardous undertaking or to benefit a domestic interest group. The terms "government-granted monopolies" are frequently used to refer to patents, copyrights, and trademarks. Numerous utility firms in the US are an example of monopolies that were given by the government.

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