Monopoly Regulation in Private Rail Services

Steps:

• Identify the scenario: A private monopoly supplier of rail services between two cities, prone to high prices without constraints.
• Recall monopoly characteristics: Natural monopolies like rail face high fixed costs, leading to barriers but also potential exploitation.
• Evaluate factors: Determine which option imposes external limits on pricing power.
• Select the control mechanism: Government intervention prevents abuse in essential services.

Why B is correct:

• Government policy regulates monopolies to protect public interest, enforcing price caps or oversight under antitrust laws like the Sherman Act.

Why the others are wrong:

• A: Barriers to entry sustain the monopoly, enabling high prices rather than stopping them.
• C: High maintenance costs raise expenses but do not prevent the firm from passing them on via elevated prices.

Not enough information for D (option incomplete).

Final answer: B