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How can you justify the existence of government-granted monopolies for such public utilities as local telephone service, natural gas distribution, and electricity in the light of the traditional economic argument that the more competition there is, the more likely it is that an efficient allocation of resources will occur?

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The solution describes the government-granted monopolies. The traditional economic arguments that the more competition there is is determined.

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Public utilities as local telephone service, natural gas distribution, and electricity are natural monopolies. A natural monopoly is an industry where the maximum efficiency of production and distribution is realized via a single supplier due to the economies of scale attained in that particular industry.

The economic principles say that the firm should produce in long term at their minimum average total costs. In case of natural monopolies the average total costs are achieved at such large level of output that it is not feasible to divide the ...

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