You are the mayor of your home town, and one day you arrive at city hall to find angry voters demonstrating against you. They are mad because your office created a garbage-collection monopoly by awarding only one company a permit to collect garbage in your town. The voters claim that the company is overcharging and providing poor service. They want you to do something that will lower rates and improve service. You call your staff economist, who presents evidence that there are substantial economies of scale to garbage collection. What are your options if you are interested in efficiency?

What will be an ideal response?

Since there are substantial economies of scale, you would not want to allow more companies to enter and you would not want to split up the existing company. You can either regulate the monopoly, or put the city in charge of garbage collection (either by buying out the monopoly, or by revoking its permit and taking over garbage collection).