Principles of Economics- Mankiw (5th) 323

Principles of Economics- Mankiw (5th) 323 - CHAPTER 15 M O...

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CHAPTER 15 MONOPOLY 333 reduce costs. Each firm in a competitive market tries to reduce its costs because lower costs mean higher profits. But if a regulated monopolist knows that regula- tors will reduce prices whenever costs fall, the monopolist will not benefit from lower costs. In practice, regulators deal with this problem by allowing monopolists to keep some of the benefits from lower costs in the form of higher profit, a prac- tice that requires some departure from marginal-cost pricing. PUBLIC OWNERSHIP The third policy used by the government to deal with monopoly is public owner- ship. That is, rather than regulating a natural monopoly that is run by a private firm, the government can run the monopoly itself. This solution is common in many European countries, where the government owns and operates utilities such as the telephone, water, and electric companies. In the United States, the govern- ment runs the Postal Service. The delivery of ordinary First Class mail is often thought to be a natural monopoly. Economists usually prefer private to public ownership of natural monopolies.
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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