Chapter 62, Problem 5MCQ

To determine

Difference between a regulated natural monopoly and an unregulated monopoly.

Answer to Problem 5MCQ

(b) Quantity.

Explanation of Solution

There will be higher output for a regulated natural monopoly than for an unregulated natural monopoly because in a regulated natural monopoly government fixes the low price which increases the demand and output level. Hence, option (b) is correct and (c) is incorrect.

Option (a) is incorrect as there is no relevance of product variety in the natural monopoly.

Profit is shifter to the consumer surplus so profit would be less in a regulated natural monopoly than in an unregulated natural monopoly. Hence, option (d) and (e) is incorrect

Economics Concept Introduction

In a regulated natural monopoly, the price is set by the government which will be naturally lower but higher than marginal cost so the output would be greater, consumer surplus would be more due to low price and profit would be less as compared to an unregulated natural monopoly.