Question

List the different ways the government can force monopolists to behave and price more competitively and discuss the difference between Marginal Cost and Average Cost pricing between a natural monopolist and a regular monopolist.

Answer 1

Hi,

Monopoly-Monopoly is that market situation where a single producer controls supply of goods and services and the entry of new producer is very restricted.

Natural Monopoly- Natural monopoly is that market situation where manufacturing or production cost is very high or infrastructure cost is very high or entry of new producer is highly restricted because of public convenience and security of public interest or public welfare. Like, Public utility,Public transportation etc.

Regular Monopoly- Regular monopoly where production of products or services is produce by single producer.This situation is create because of producer has unique product or service,no competitors,no substitute of product or service,advantage of new technology,production cost etc.

Ways the government can force monopolists to behave and price more competitively -

1.Imposing price control by fixing minimum or maximum price. Government strictly take this action where products or services are highly concern to public welfare or interest. Like, drug,grain etc.

2.Taking over there ownership or nationalization of industry or firm or company in consumer interest or for social welfare.

3.Splitting or breaking of firms.

4.Making anti monopoly policy.

3.Make a economy or market for easy to business..

4.Promote competition.

Marginal Cost- The cost of producing a single additional unit of product.

Average Cost- The average cost of production=

(fixed cost+variable cost)/No of unit.

Marginal Cost and Average Cost pricing  in natural monopoly-

In natural monopoly average cost is lesser than marginal cost because of the large scale of production capacity.In natural monopoly see its average cost decrease overall quantities of output because its marginal cost does not increase as the firms produce more outputs.

Marginal Cost and Average Cost pricing  in regular monopoly- In regular monopoly average cost is more than marginal cost because the limited scale of production capacity.In regular monopoly see its average cost increase overall quantities of output because its marginal cost increase as the firms produce more outputs.

NOTE- Marginal Cost and Average Cost pricing  in natural monopoly is opposite of Marginal Cost and Average Cost pricing  in regular monopoly.