(15 marks) Public utilities, like local electricity providers, are likely natural monopolies. They are typically regulated by the government with a rate-of-return regulation. Explain why public utilities like local electricity providers are natural monopolies. Explain the economic rationale behind the rate-of-return regulation on a natural monopoly. Given your above arguments, discuss whether the government should regulate firms other than a natural monopoly with this method.
(15 marks) Public utilities, like local electricity providers, are likely natural monopolies. They are typically regulated by the government with a rate-of-return regulation. Explain why public utilities like local electricity providers are natural monopolies. Explain the economic rationale behind the rate-of-return regulation on a natural monopoly. Given your above arguments, discuss whether the government should regulate firms other than a natural monopoly with this method.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter25: Government And Product Markets: Antitrust And Regulation
Section: Chapter Questions
Problem 12QP
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