A local government funds mosquito control because the benefi…

A local government funds mosquito control because the benefits extend across entire neighborhoods. It would be difficult to exclude individual households from reduced mosquito exposure once spraying occurs. The strongest reason private markets may underprovide mosquito control is:

The city of Wichita is considering whether to privatize its…

The city of Wichita is considering whether to privatize its municipal water system. A consulting report estimates that duplicating underground infrastructure for a second competitor would increase total industry costs by nearly 70%. The city council is concerned that allowing an unregulated private provider may lead to monopoly pricing, but forcing the firm to charge marginal cost may create financial instability. If regulators require the firm to charge P = MC, which outcome is most economically likely?