Explain the possible problems tor consumers of each of the following ways of dea

Question

Explain the possible problems tor consumers of each of the following ways of dealing with a natural monopoly: Splitting the natural monopoly into several smaller competing firms. Requiring that the company charge a price equal to where the marginal cost curve crosses the market demand curve, to that P = MC like a competitive firm. Setting the price that the firm can charge so that the firm covers its average costs and also makes a normal (but only a normal!) rate of profit. Who is more likely to be well represented at a meeting where government regulators come together to determine the price and quantity that an industry will charge: voices representing the industry or voices representing consumers? Why? What problem does this pose? Why do most economists argue that the money raised by selling off state-owned firms is not an especially good argument for selling them? What is a respectable economic motive for the selling of state-owned firms?

Explanation / Answer

1) Several small competing firms will benefit consumers, but still again the monopolist is incharge of all such small firms and consumers will still get the goods in companies terms

2) Where P= MC the profit for the company is almost 0, This is no way to compete, The firm will loose its ability to supply in future resulting in shortages

3) Setting the price is again regulating market this will push costs of incompetency on consumers which will make them get incompetent product

1) Consumer bodies are very weak in general and almost non-existent, You cannot form a union of consumers to control price of onions or tomatoes, A normal functioning market is necessary, However trade bodies are always invited and they get to tell government what to do with price, But government will decide on popular public opinion on which price so everyone here takes fair share

2) State owned firms which have bad management must first bring a rule to change that management, Then if still there are huge strucutral and labor problems government have no chocie but to sell it off, Government of any country cannot go againist public opinion this is basics of government,.

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