Question

Why do governments regulate natural monopolies?

to allow additional producers to enter a market
to prevent a monopoly from abusing its customers
to help lower the costs of production or distribution
to provide companies with greater access to raw materials

Answer 1

Correct answer: to prevent a monopoly from abusing its customers.

Natural monopolies (e.g., utilities) have high fixed costs and strong economies of scale, so a single firm can serve the market most efficiently. Governments regulate them to curb monopoly power—control prices, ensure service quality and access, and prevent price gouging or discriminatory practices. The other options are not primary reasons: regulation does not aim to invite competing producers into a natural-monopoly market (competition is often inefficient there), nor to give firms greater access to raw materials; and while regulation can lead to lower prices for consumers, it does not directly lower firms' production or distribution costs.