"Running head: ECONOMICS ASSIGNMENTSEconomics AssignmentsName of the studentName of the UniversityAuthor note:ECONOMICS ASSIGNMENTS1Introduction:According to Vikharev (2013), a natural monopoly exists in an industry when the onlyfirm experiences are decreasing cost condition over a long range of output due to economiesof scale. In this situation, if the market is divided among more than one firm, then averagecost (AC) will be higher. Therefore, from the point of view of cost minimization, it is betterthat only one firm should exist in such an industry. From the point of view of Stiglitz &Rosengard (2015), it can be notified that natural monopoly exists in public utility servicessuch as transport, communication, and supply of electricity, fuel, water and much more.In this perspective, the government of the concerned country intervenes in the marketand regulates the market price at that point where the demand curve cuts the average totalcost curve. The main reason behind the fact is that it covers the unwanted loss in theeconomy. As argued by Nizovtseva (2013), the cost-benefit analysis is the main motive of thegovernment. In this research essay, the regulation of the government in the natural monopoly hasbeen critically analyzed along with the cost-benefit approach.Discussion:To critically analyze the reason of government regulation in the natural monopoly, theresearcher needs to consider the equilibrium condition and profit maximization point of themonopoly market. According to Minamihashi (2012), a monopoly is said to prevail if there isa single seller in the market for a product which has no close substitutes and there are barriersto entry and exit. Apart from this, sometimes the size of the market may be such as not tosupport more than one firm of optimum size (Saglam, 2016). The examples are transport,electricity, telephone, fuel and water. There are substantial economies which can be reaped ata large scale of output. A single firm can supply the desired output at a lower cost than two or ECONOMICS ASSIGNMENTS2smaller forms can. These types of firms are known as natural monopolies (Soda & Carlone,2013).In the monopoly market, the short-run equilibrium of a monopolist occurs at the pointwhere Marginal Revenue (MR) = Marginal Cost (MC) and the slope of MR is less than theslope of MC. Figure 1: Short-run equilibrium and profit maximization condition undermonopoly marketSource: (As created by author) As per this figure, the short-run equilibrium point under monopoly market is E atwhich the above stated two conditions are satisfied. As a result, the equilibrium price is p*and the equilibrium quantity is q* under the monopoly market. On the other hand, as per thisfigure, the ATC is less than the equilibrium price of monopoly (p*). Thus, the rectangulararea p*cdf represents the profit of the monopoly firm under short-run. In this situation, boththe MC and ATC is upward rising, and the monopoly firm attains the supernormal profit. "