In markets where minimum efficient scales are very high relative to demand, government often steps...

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In markets where minimum efficient scales are very high relative to demand, government often steps in to regulate. Firms in such markets are usually legally protected from competition but often seem to be productively inefficient.Explain why this is puzzling.How can the puzzle be resolved, if at all? What are the main alternative approaches? Discuss briefly the advantages and disadvantages of each.

Robert · Accepted Answer

In markets where minimum efficient scales are very high relative to demand, government often 
steps in to regulate. Firms in such markets are usually legally protected from competition but 
often seem to be productively inefficient. Explain why this is puzzling. How can the puzzle be 
resolved, if at all? What are the main alternative approaches? Discuss briefly the advantages and 
disadvantages of each. 
Answer: 
Natural monopoly market is perfect example of markets where minimum efficient scales are very 
high relative to demand. Under this type of market, economies of scale (i.e.

In markets where minimum efficient scales are very high relative to demand, government often steps in to regulate. Firms in such markets are usually legally protected from competition but often seem...

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