Get Your Custom Essay custom paper from our expert writers, Why Is It Important for the Government to Regulate Natural Monopolies. By negotiating affordable rates with the supplier. A natural monopoly arises where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors. Why is it important for natural monopolies to exist? b They improve the economy by using materials that are native to the area. In some cases, monopolies are essential in order to lower cost and save space. For this reason it is important for the government to regulate this as otherwise it restricts the consumer choice and means that they will have pay more for a product that could be provided cheaper and it can potentially stop new technologies from entering the market that could lead to rapid change. They provide easy access to a variety of goods and services. As a result if regulated it cheaps prices low for the consumers which will keep disposable income high and then money can be spent elsewhere, increasing the aggregate demand for the country. Why Modern Monopolies Are Good Every business wants to have the riches of a monopoly, but no business wants to be called one. An example of a natural monopoly is tap water. A natural monopoly arises where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors. The case against monopoly. Natural Monopolies. Mainly because most resources are available in various regions across the globe. Let Professional Writer Help You, 6000 Fairview Road, SouthPark Towers, Suite 1200, Charlotte, NC 28210, USA. This is just a sample. If you know what a monopoly is, then you must not know then whether or not if corruption is good for an economy. This is particularly important for natural monopolies – industries where the most efficient number of firms is one. A relatively easy way to achieve this is to use a government-owned natural monopolist to fix the price below the free-market price. Barriers to entry are an essential aspect of monopoly markets. on, Why Is It Important for the Government to Regulate Natural Monopolies. Also, the reserve requirement can be lowered so that banks can loan out more money for people. Why is it important for natural monopolies to exist? It was helped by being granted a legal monopoly from the outset, but it had competition to face too. They improve the economy by using materials that are native to the area. Explain the relationship between resource control and monopolies. Price capping by regulators RPI-X Explain why monopolies may be an undesirable form of market structure In theory, a monopoly is a situation in which the ‘industry is the firm’ however in reality in the UK we consider anything which controls 25% or more of the market to have monopoly power and the Competition Commission would investigate a report on any merger which goes up to this percentage. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good. Because of the lack of competition, monopolies tend to earn significant economic profits. Monopoly in the Long-Run In the long‐run, all input factors are assumed to be variable, making it possible for firms to enter and exit the market. It can take the type of: a. Why is it important for natural monopolies to exist? How the government regulate monopolies . Examples of these are Utility companies (ConEd here in New York). Natural monopolies have overwhelming cost advantages over potential competitors. PhDessay is an educational resource where over 1,000,000 free essays are collected. Learning Objectives. c. They make it more efficient to deliver necessary goods and services to consumers. As with government monopolies, the purpose of allowing government-granted or natural monopolies to exist is partly is to regulate costs within affordable levels and to control growth and development. When economies of scale are extensive relative to the size of the market, one firm can produce the industry’s whole output at a lower unit cost than two or more firms could. For comparison, think of power … The overhead cost is to high for competition to exist. Which of these is the result of a government-regulated natural monopoly? In the discussion of a perfectly competitive market structure, a distinction was made between short‐run and long‐run market behavior. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good. Sources of monopoly power include economies of scale, capital requirements, technological superiority, no substitute goods, control of natural resources, legal … These profits should attract vigorous competition as described in Perfect Competition, and yet, because of one particular characteristic of monopoly, they do not. A natural monopoly occurs when a firm enjoys extensive economies of scale in its production process. Gosport Ferry is an example of a natural monopoly. They improve the economy by using materials that are native to the area. C. is a realistic model of many different markets. In other cases, monopolies are identified as "natural monopolies"- i.e. Which best describes how the government enables government monopolies to exist? The ma… Inefficient!! Why is it important for natural monopolies to exist? A natural monopoly is a situation in which there cannot be more than one efficient provider of a good. Economies of Scale. How the government regulate monopolies. During this period, the company De Beers effectively … Examples of barriers to entry . Furthermore if left with no regulation then standards could slip and as explained the environment could suffer, so it is very important for the government to oversee natural monopolies. A natural monopoly is allowed to exist and flourish in the market because it can supply specific service or product at a cost that is very lower than any potential rival can and that too in bulk to meet the demand of an entire market. Firms see more economic benefits in collaborating on a specific price than in trying to compete with their competitors. Traditionally many utility industries have been comprised of monopolies. Legal Monopoly: A company that is operating as a monopoly under a government mandate. Think about the town you live in: how many firms can you choose to buy your electricity from? Control over a natural resource that is critical to the production of a final good is one source of monopoly power. One famous example of a monopoly that arose because of ownership of a key resource is the diamond market in the twentieth century. The monopoly price is assumed to be higher than both marginal and average costs leading to a loss of allocative efficiency and a failure of the market. A legal monopoly offers a specific product or service at … Definition. Answer Key: A A natural monopoly exists whenever a single firm: A. is owned and operated by the federal or local government. Scholars The great monopoly problem mankind has to face today is not an outgrowth of the operation of the market economy. 1. Quantity demanded will exceed the quantity supplied. In other cases, monopolies are identified as "natural monopolies"- i.e. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines); therefore, it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist's market. A monopoly is a situation in which there is a single producer or seller of a product for which there are no close substitutes. When Monopolies Are Good Sometimes a monopoly is necessary. The answer is most likely ONE. By continuing we’ll assume you’re on board with our cookie policy, Your Deadline is Too Short? Natural monopolies. (ii) They improve the economy by using materials that are native to … by issuing a patent by allowing natural monopolies to exist by creating and running a monopoly by owning the means of production . They make it more efficient to deliver necessary goods and services to consumers. A monopoly company is one that exists in a market with little to no competition and can therefore set its own terms and prices when facing consumers, … They make it more efficient to deliver necessary goods and services to consumers. companies where one big firm can produce at lower cost than a number of smaller firms- in which case they are subjected to price restrictions rather than being broken up. They improve the economy by using materials that are native to the area. They provide easy access to a variety of goods and services. This typically happens when fixed costs are large relative to variable costs. Natural Monopolies. A domestic firm may have monopoly power in the domestic country but face effective competition in global markets. Therefore, we cannot encourage competition, and it is essential to regulate the firm to prevent the abuse of monopoly power. A natural monopoly is a type of monopoly that exists due to the high start-up costs or powerful economies of scale of conducting a business in a specific industry… The consequence of this entry and exit of firms was that each firm's economic profits were reduced to zero in the long‐run. can use them for free to gain inspiration and new creative ideas for their writing assignments. Therefore new firms, with relatively low output, will find it difficult to compete because theirs average … a. Some industries are natural monopolies – due to high economies of scale, the most efficient number of firms is one. first 60 minutes are free. Therefore it can be beneficial for the government to regulate them to make sure that emerging companies do not enter that market, as it means a better environment and more open space that can be used for alternative projects. In the long‐run, all input factors are assumed to be variable, making it possible for firms to enter and exit the market. A natural monopoly arises where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors. International competitiveness. Monopolies are also beneficial when the costs of having one provider are lower than the cost of multiple competitors. Also, some monopolies prevent the destruction of the environment, since multiple competing electrical companies would have to destroy more land in order to have multiple power lines owned by separate companies. D. avoids all real-world problems and complexities. It produces profit for the monopolist within the short and long run. This is known as a natural monopoly. It is important for natural monopolies to exist because : they provide easy access to a variety of goods and services Natural monopoly happens when a company could serve almost the … Similar natural monopolies exist in local electrical services and cable providers, but governments often regulate natural monopolies to ensure fair practices and pricing for customers. E.g. Examples of infrastructure include cables and grids for electricity supply, pipelines for gas and water supply, and networks for rail and underground. The result may be that there is only room in a market for one firm to fully exploit the economies of scale that are available and therefore achieve productive efficiency. However, once a barrier to entry is in place, a monopoly that does not need to fear competition can just produce the same old products in the same old way—while still ringing up a healthy rate of profit. For instance, during election season, many political parties promise to lower the prices of certain necessities in order to capture votes. Those circumstances result in decreasing average total costs as output increases, which makes it more difficult for new firms to enter the market. A single source for electricity in your community. Question: Why is it important for natural monopolies to exist? A new business might be able to create a better product than an older one, but this new business might still be in the process of establishing itself. Question: Why do governments allow some monopolies to exist? Monopoly should exist!!!!!!! Since the established company might have more money saved up, they can remain in business longer while losing profit and can wait until the other company runs out of business before raising the prices high again. 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