Question

explain why the problems arising in the public-utility regulation do not arise in the case of a monopoly that is not a natural monopoly

Answer 1

In the monopoly the market power has fully on producer or seller. A public utility service like electricity, gas, water etc and when regulation are imposed on this producer and there arises the problem. If the producer is natural monopoly the problem arises mainly because of lower market share in terms of power and producing at the lowest cost. Whenever the regulation are imposed it affects the supply and price of utility services.

If the service provider is monopoly then the regulation does not create problems mainly because of market power and full control over supply for that particular service. As there no such control of public over monopoly production that is why any regulation are imposed on it may differ market price and quantity. In monopoly the price and quantity may change due to this regulation but it does not create any problem. It is because there is not a condition of closing the production. The profit may reduce. But in case of natural monopoly it will be produced at lower cost and any regulation will definitely create problems by changing the condition.