1 / 21

Lecture 35: Natural Monopoly & Public Utility Regulation

Lecture 35: Natural Monopoly & Public Utility Regulation. Natural Monopoly. Natural Monopoly MES large relative to market. Diagram 35.1. LRMC. £. LRAC. MES. MC m = AC m. Q m. Output. Demand. Natural Monopoly. Natural Monopoly MES large relative to market many firms  high costs.

coby
Télécharger la présentation

Lecture 35: Natural Monopoly & Public Utility Regulation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lecture 35: Natural Monopoly & Public Utility Regulation

  2. Natural Monopoly • Natural Monopoly • MES large relative to market

  3. Diagram 35.1 LRMC £ LRAC MES MCm = ACm Qm Output Demand

  4. Natural Monopoly • Natural Monopoly • MES large relative to market • many firms high costs

  5. Diagram 35.2 LRMC £ LRAC ACs MES MCs MCm = ACm Qs Qm Output

  6. Natural Monopoly • Natural Monopoly • MES large relative to market • many firms high costs • monopolist  high price/low output

  7. Diagram 35.3 LRMC £ LRAC Pmono MES MCm = ACm Qmono Qm Output Demand MR

  8. Natural Monopoly • Natural Monopoly • MES large relative to market • many firms high costs • monopolist  high price/low output • Public ownership • marginal cost pricing (P = LRMC) • LRMC < LRAC • break even (P = LRAC)

  9. Diagram 35.4 LRMC £ LRAC MES P = LRAC AC* P = LRMC* Q Q* Qm Output Demand

  10. Natural Monopoly • Natural Monopoly • MES large relative to market • many firms high costs • monopolist  high price/low output • Public ownership • marginal cost pricing (P = LRMC) • LRMC < LRAC • break even (P = LRAC) • X-inefficiency • Regulation of privately-owned utilities in UK & USA

  11. Public Utilities • natural monopolies • large capital cost - network/grid • diminishing LRAC • single network efficient

  12. Electricity • Generation • Transmission • Distribution • Supply Natural monopoly restricted to network/grid

  13. Regulation of Utilities Unregulated natural monopoly  allocative inefficiency (P>Mc) • marginal cost pricing Regulation  UK: OFCOM, OFGEM (OFGAS, OFFER), OFWAT  USA: State utility commissions

  14. United States rate of return regulation • normal return on capital • average cost pricing (P=AC>Mc) • no incentives TR* = TVC +  K operating expenses normal return rate base

More Related