Question

Which of the following is true about a firm with a natural monopoly

a- it usually agrees to allow the government to control the price and service provided
b- it offers many different goods and services
c- it is usually very inefficient
d- it is an example of perfect competition

Answer 1

A natural monopoly usually allows government regulation of its prices and services, ensuring fair access and prices for consumers.

Step-by-step explanation:

The true statement about a firm with a natural monopoly is that it usually agrees to allow the government to control the price and service provided. This is because a natural monopoly occurs when a single firm can supply the entire market demand at a lower cost than multiple firms, often due to high fixed costs and low variable costs. Therefore, to prevent the possibility of unfair price manipulation and to ensure the service is accessible, governments typically regulate these monopolies, sometimes by controlling prices and services, as is common with public utilities like electricity and water service.

Answer 2

Natural monopolies are rare, but occur when start up costs are high, the industry requires unique technology or natural resources, etc. IN the rare case of a natural monopoly, the government will allow them to exist, but with government oversight to protect consumers from pricing gauging.