Final Exam Review Questions Page 4 of 4 ive an example of a

Final Exam Review Questions Page 4 of 4 ive an example of a natural monopoly. Why are they established? Why do they n What is the concept of economic rent? Why is economic rent so high? 37. 38. Explain the difference between income and wealth. Why is there such an unequal distribution of both in our economy? 39. How does increasing human capital help to reduce poverty? 10. What is the purpose of pay equity leglislation?

Solution

Answer for 36

Natural monopolies are introduced in a market where operating costs or fixed costs to run a business is very huge. This specified cost decreases as firm produces more output. In a market where natural monopolies exist entry cost remains at higher end which makes that market less competitive.

Utility Market is the best example of natural monopoly

In Utility market entrance cost is higher as it takes to implement the plant and infrastructure but as demand for output increase in terms of for example electricity cost is normalised.

Natural monopoly makes itself to control the almost complete market which is due to providing goods or services at lower prices even that of smaller competitors in the same market.

Government should intervene to provide fairer bet for consumer by fixing the caps and floors for prices quoted