Public regulation is used in naturally monopolistic markets where public ownership is not a feasible option. Public regulation may involve government control of the price at which a specific utility must be sold by the monopolistic firm. By directly operating the monopoly, government bars unfair exploitation of monopoly power by the firm. For example a railroad company, owned and managed by government, which is the sole owner of railways infrastructure in the country is a publically owned natural monopoly. Public ownership typically involves direct governemt control of the natural monopoly producing a specific public good or service. In such a situation the government may adopt one of the following two alternative approaches in order to retain the possibility of unit cost advantage of a natural monopoly as well as avoid the negatives of a monopoly: Monopolies tend to restrict supply thus inflating prices. However monopolies have the negative feature that they tend to unfairly exploit their monopolistic power if allowed to. By this logic, it is preferable for a government to allow monopolization of the market. A natural monopoly is a type of monopoly that exists typically due to the. In other words, a natural monopoly uses the economy's limited resources more productively than multiple competing firms. Definition of natural monopoly: A monopoly that arises from economies of scale. In naturally monopolistic markets, competition is uneconomical because multiple producers are unable to completely utilize economies of scale and this results in unit costs above the lowest possible values and thus higher prices. Pure cases of natural monopoly are rare in real world but they do exit in markets of public utilities such as power, water, telephone, railways etc. Natural monopolies typically exist when production of a product or service requires large and extremely costly infrastructure. With a natural monopoly, the internal economies of scale. Typically, there are very high fixed costs and low marginal costs. This is because of the nature of costs in a natural monopoly. Natural monopoly is a monopoly that exists as a result of a market situation in which a single monopolistic firm can supply a particular product or service to the entire market at a lower unit cost than what could be achieved by a number of competing firms. A natural monopoly is a special case where one large business can supply the entire market at a lower long run average cost contrasted with multiple providers.
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