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Chapter 27: Q. 2 (page 620)

A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cables crisscrossing the city. Why do you think the owner is defending regulation by the city?

Short Answer

Expert verified

The owner justifies the regulating regime, citing monopoly rights granted by the town to provide cable services.

Step by step solution

01

Introduction

The owner of a local cable company is defending laws because he or she has monopolistic rights to supply cable services in a specific area.

02

Given Information 

-The municipal government regulates the lone provider of cable television service. Local inhabitants do not want a huge number of various cables crisscrossing the city, thus regulation is required.

03

Explanation

A significant number of cable service providers may emerge if no limits are implemented. Municipal regulation benefited the owner of a local cable company who was granted monopoly authority to provide cable services.

As a result, the owner defends the regulation policy, citing the municipality's monopoly rights to provide cable services.

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Most popular questions from this chapter

Suppose that in panel (a) of Figure 27-2, the vertical distances to points F and A are \(10per unit and \)2per unit, and Qm is 1,000units. To measure the degree of monopoly power, economists often examine the differential between price and marginal cost as a percentage of the price. What would be the value of this measure of monopoly power for the natural monopolist depicted in panel (a) of the figure?

Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. Why might municipality give monopoly rights to a cable company?

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Consider the following fictitious sales data (in thousands of dollars) for both e-books and physical books. Firms have numbers instead of names, and Firm 1generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds 70percent.

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