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In: Economics

In Canada, what are the challenges facing government policymakers in dealing with natural monopolies? What are...

In Canada, what are the challenges facing government policymakers in dealing with natural monopolies?

What are the governments possible solutions for natural monopoly? List 3 possible examples and explain

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Expert Solution

Now days US are regulated natural monopolies. A natural monopolies poses difficult challenges for competition policy in Canada, because the structure of the costs demand seems to make competition unlikely are closely. A natural monopoly arises when average cost declining over the range of production that satisfies market demand. This typically happens when fixed cost is large relative to variable costs. As a result, one firm is able to supply the total quantity demanded in the market at lower cost than two or more firms—so splitting up the natural monopoly would raise the average cost of production and force customers to pay more.

Public utilities, the companies that have traditionally provided water and electrical service across much of the Canada, are leading examples of natural monopoly. It would make little sense to argue that a local water company should be broken up into several competing companies, each with its own separate set of pipes and water supplies. Installing five or six identical sets of pipes under a city, one for each water company, so that each household could choose its own water provider, would be terribly costly. The same argument applies to the idea of having many competing companies for delivering electricity to homes, each with its own set of wires. Before the advent of wireless phones, the argument also applied to the idea of many different phone companies, each with its own set of phone wires running through the neighborhood.

Natural monopoly is a type of monopoly that is mainly created automatically in an industry that is characterized by high costs and first mover's advantage. This means that they are the first in the competition and far ahead of any other potential suppliers. Monopolies tend to exploit their power and domination in the market, which affects the welfare of the people who have no choice but to purchase from them.

Some economies adopted a solution to regulate the problem of natural monopoly by taking over the monopoly. When the government takes charge of the product/service/resource under the natural monopoly, then natural monopolies can be solved. At the same time, no inconvenience will be caused in the flow of provision of this good or service.

All the public utilities are the natural monopolies.

Municipal water works, Electrical power companies.

Telephone companies etc..

An example of a natural monopoly is Electrical power companies. It makes sense to have just one company providing a network of Electrical Power services because there are very high capital costs involved in setting up a national network of Electrical Power and its allied Components.

Other one examples of a natural monopoly is Telephone companies..its make sense to have just company providing a Telephone services Here also involve high cost capita setting up national network of Telephone and parts of its instruments.

Take one more examples of a Natural monopoly is Municipal water works. We know natural monopoly is type of monopoly where only one company involve; here also involve high capital cost to setting up national network water pipe and sewage system.


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