Principles of Microeconomics / Unit 10 MIC 0908 short lesson, about 20 seconds
Regulating a Natural Monopoly: Four Options
Captions available
The idea
A natural monopoly's average cost falls across the whole market, so one firm serves it cheapest. Options: leave it alone, and it restricts output; split it, and average cost rises; require marginal-cost pricing, efficient but loss-making; or average-cost pricing.
In practice
Two half-size water systems duplicate the pipes.
Where people slip
Marginal-cost pricing needs a subsidy, since price is below a falling average cost.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Something wrong in this lesson? Flag it