Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To ensure a single firm does not exploit its market power
B
To encourage competition in all market conditions
C
To eliminate the need for economies of scale
D
To guarantee that prices are always lower than marginal costs
Understanding the Answer
Let's break down why this is correct
Answer
Natural monopolies occur when a single company can supply a product or service more efficiently than multiple companies could. This often happens in industries like water supply or electricity where the infrastructure costs are very high. Without government regulation, a natural monopoly might raise prices too high or provide poor service because they have no competition to keep them in check. For example, if only one company supplies water to a city, they might charge whatever they want, knowing that people need water to live. Therefore, government regulation helps ensure fair prices and good service for everyone, making sure the needs of the public are met.
Detailed Explanation
A natural monopoly can control the market. Other options are incorrect because Some think regulation should always promote competition; It's a common belief that regulation can remove the need for large-scale production.
Key Concepts
Natural Monopolies
Government Regulation
Economies of Scale
Topic
Natural Monopolies
Difficulty
medium level question
Cognitive Level
understand
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