Question

Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. Why might municipality give monopoly rights to a cable company?

Short answer

A municipality grants monopoly rights to a cable company, based on the long-term benefits.

Step-by-step solution

Introduction

Due to large-scale economies of scale and efficiency, a municipality may grant monopoly rights to a single cable service provider.

If a single company provides cable service in a specific area, it may see the falling average cost.

Given Information

- Monopoly rights to service a specific territory within a metropolitan area are often granted to local cable television operators.

-Local governments receive special taxes and licensing fees from the businesses.

Explanation

A decrease in the average overall cost could aid in service expansion and efficiency. When a company obtains large-scale economies of scale, consumers benefit.

As a result, a municipality grants monopoly rights to a cable company, based on the long-term benefits.