A natural monopoly occurs whenA. production requires the use of free natural resources, such as water or air. B. the firm is characterized by a rising marginal cost curve. C. there are economies of scale over the relevant range of output. D. the product is sold in its natural state, such as water or diamonds.

Question

Social Studies

Kathleen Stephenson

23 April, 04:40

A natural monopoly occurs whenA. production requires the use of free natural resources, such as water or air. B. the firm is characterized by a rising marginal cost curve. C. there are economies of scale over the relevant range of output. D. the product is sold in its natural state, such as water or diamonds.

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Madalyn Stanley · Answer 1

C. there are economies of scale over the relevant range of output.

Explanation:

An industry is a natural monopoly when a single company can deliver a good or service to an entire market at less than two or more companies. A natural monopoly arises when there are economies of scale for the entire relevant range of production.

An example of a natural monopoly is in water distribution. To bring water to city dwellers, a company needs to build a pipeline network. If two or more companies competed to provide this service, each company would have to pay a fixed cost of building the network. Thus, the average total cost of water is lower if only one company supplies the market, which represents an economy of scale.