Public transport is a sector that shows some characteristics of a natural monopoly. Explain the problems arising from marginal cost pricing.?
Using this example
- OiyLv 68 months ago
The market of public transport is monopoly through government concession. So the operator has very high market power in the short run. If the market is unregulated, the price will be set at MC=MR which is higher than the variable cost per unit. So every concession, there are conditions. The government is strictly monitoring. The price ceiling is set by the government a little bit higher than a variable cost per unit in order to protect the consumers' rights. This is called the marginal pricing in the field of transportation.