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Question: Question 2 [25 marks] It can be argued that natural monopolies are more efficient that perfectly ...

Question 2 [25 marks]

It can be argued that natural monopolies are more efficient that perfectly competitive markets in that they are able to bring the unit costs of production lower than a perfectly competitive market.

2.1 With the aid of a diagram, discuss whether this is true for a hypothetical market that produces the landline telephone service to that economy.

2.2 Using the diagram in 2.1, discuss how welfare to society would be affected in the market in 2.1, if a monopoly dominates the market and what the government can do to maximise social welfare.

Answer 1