Government Role in Natural Monopolies

Steps:

• Identify natural monopoly: A market where one firm serves all due to high fixed costs and economies of scale, like utilities.
• Recognize government ownership rationale: Prevents inefficiency from private profit focus; aims for social welfare.
• Evaluate choices: Check which aligns with public interest over private motives.
• Select best: Option capturing externalities, as governments prioritize societal benefits.

Why D is correct:

• Natural monopolies often produce external benefits (e.g., infrastructure access); government ownership ensures pricing reflects social welfare, per public economics principle of internalizing positive externalities.

Why the others are wrong:

• A: Government ownership reduces competition, not guarantees it.
• B: Governments subsidize losses to maintain service, not ignore them.
• C: Profit maximization is private sector goal; governments focus on efficiency and equity.

Final answer: D