Question

What is the justification for the government control of a utility that is a monopoly?

Answer 1

These utilities are known as natural monopolies. They are able to supply a large quantity of service or a product to a large number of customers at a significantly lower average total cost. Because these are monopolies, the charger price that is determined by the marginal revenue and marginal cost approach which leads to a higher price and a reduced quantity in the market. In this sense this natural monopoly if remain unregulated earns substantial profits

Government enters the market and controls the functioning of a utility that behaves like a natural monopoly by either using a fair price policy or average cost pricing or it can also use of marginal cost pricing. Both of these measures increase the quantity of the product of the services provided and reduce the price for the consumers. Thus, the government intervention is justified