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Question
Microeconomics
Posted 8 months ago
Which of the following best defines a natural monopoly?
Choose 1 answer:
A a firm that produces the quantity where marginal cost equals marginal revenue
(B) a firm that is the sole owner of a key resource
(C) a producer that minimizes average total cost instead of maximizing profit
(D) a firm that only sells natural resources
(E) a firm that has economies of scale over its entire range of demand
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Answer from Sia
Posted 8 months ago
Solution
a
Definition of Natural Monopoly: A natural monopoly is a type of monopoly that arises due to high fixed or startup costs of operating a business in a specific industry. This results in economies of scale over the entire range of demand, making it most efficient for a single firm to supply the entire market
Answer
(E) a firm that has economies of scale over its entire range of demand
Key Concept
Natural Monopoly
Explanation
A natural monopoly occurs when a single firm can supply the entire market at a lower cost than any combination of multiple firms due to economies of scale. This typically happens in industries with high fixed costs and low marginal costs, such as utilities.
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