Question

1. Find an example of a regulated monopoly.  (If your example is a regulated monopoly, you may continue with it).  
   • Do you agree that this monopoly should be regulated? If yes, how does regulating it benefit the society? (You may also consider what would happen if it weren't regulated)
   • If no, what are your arguments against regulating it?

Answer 1

Most of the public utilities in the United States are heavily regulated by the government. This includes water and electric service companies that provide electricity and water across the town. It can be articulated that these monopolies are natural because they supply to a large number of consumers.

Their regulation is required because they are likely to experience economies of scale with falling average cost as more and more output is produced. this tendency helps them in charging higher price from consumers and thereby creating a large deadweight loss.

Regulation is done by forcing the monopolies to either charge a price equal to the average cost or marginal cost. This is also required because consumers should not be ethically paying higher price for a public utility service. Regulation reduces the price increases the quantity and allows many more consumers to get benefit from the particular service. This also increases their consumer surplus and reduces the deadweight loss of monopoly.