ECONOMIC CONCEPTS OF LOCAL UTILITY
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The local utility identified is Power Company. A power plant refers to an industrialized aptitude that produces power within primary dynamism. Most power plants customize numerous initiators, which transforms automated dynamism into electrical energy to be supplied to electrical networks for civilization’s electrical desires. This local utility corporation provides electricity to the constructions which are connected within the power network. For the electricity supplied to the consumers, there is a fee that the power company charges for the power used. These charges are an amalgamation of both the fixed overheads and proportions.
Within the community, it’s only a single company that provides electricity within the whole region. Since it is the only company providing electricity, there is a monopoly (Nocco, Ottaviano & Salto, 2017). Therefore, this situation is regarded as a monopolistic market since the company keeps on increasing its power price frequently, leading to price discrimination. This occurs because there is no option and there is increased demand for power; hence the company takes this advantage to perfect its business.
In the presence of a substitute, the electricity process will decrease. This is because there will be less demand for electricity since more than one company is supplying it. Since there will be a higher supply but low demand, this situation will force the companies to lower their electricity charges to entice the consumer. Consumers will tend to buy power from companies that offer low prices, affecting these prices. The presence of more companies offering the same product will end a monopoly, thereby establishing a reasonable price that favors all consumers.
In conclusion, monopoly leads to price discrimination, providing inferior goods since these companies have minimal incentives towards developing their products to fit consumer consumption. Within these monopolistic markets, the companies can increase their prices without consumer involvement. The presence of substitutes or completion from firms offering the same product has great benefits to the consumers. Within this situation, the consumer can decide on which product he wants to use there. This is because there is an excess supply of the product while the demand is low, leading to a drop in prices.
Reference
Nocco, A., Ottaviano, G. I., & Salto, M. (2017). Monopolistic competition and optimum product selection: why and how heterogeneity matters. Research in Economics, 71(4), 704-717.