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Problem 22

What is cost-plus regulation?

Problem 21

If public utilities are a natural monopoly, what would be the danger in splitting them into a number of
separate competing firms?


Antitrust laws are the laws and regulations that are imposed by government or authorities to
ensure the increased competitiveness in the market. It also helps observe and control mergers
and acquisition taking place between big or key firms.
Natural monopolies are those industries where the intilal costis very high and economies of
scale is achieved by only one firm mosiding utilitity reguated, and if these are breken
into small frons trinen the firm will lose the benefit of low average cost actifieved because of
economies of scale $\$ 0$ , now these froms will proide the same good with higher price because of
higher cost.



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Video Transcript

a lot of public utilities are natural monopolies, these air water companies, electric companies. But as we know, sometimes from the consumer standpoint, we may not want Monopoly's. So why are we not just letting up natural monopolies of thes public utilities? Well, the answer said, the cost of splitting them up is too high. The reason why we have not your monopolies and one water company may provide water for a big section. It's because they kind of owned the pipelines that are underneath. Ah, a particular city. I mean, for example, if we split that up into four different firms that each one of those firms has to have its own set of pipes for there to be competition. If that is the case, you can imagine how much it would cost to then increased the number of pipes for each one of these companies to spread the same range as a monopoly spread. For that reason, we may not want to split up a water company. The same was true for electric companies, electricity scattered through cables, and so if you were just put the mob, you need to now make sure that that's the smaller firms right from the split can provide electricity to the same households to raise competition. And again, this is just a very costly procedure. That's why natural Monopoly, sir, don't really get split up when, when it comes to public utilities.

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