Question

which of the firms is most likely to be a natural monopoly? municipal power light, the local supplier of electricity. a restaurant that is unable to practice price discrimination and must charge all consumers the same price. a pharmaceutical company that has the exclusive right to sell a patented drug. a firm that owns nearly all of the diamond mines in the world.

Answer 1

The municipal power light, a local supplier of electricity, is most likely to be a natural monopoly due to the high infrastructure costs and efficiency of a single firm serving the entire market.

Step-by-step explanation:

A natural monopoly occurs when a market is best served by a single firm due to the nature of the industry's infrastructure and cost characteristics. In the context of the question asked, the firm that is most likely to be a natural monopoly is municipal power light, the local supplier of electricity.

This is because public utilities like water and electrical services are classic examples of natural monopolies, where the market does not have room for multiple players due to high infrastructure costs and the efficiency of a single firms operating at the scale where average costs are minimized.

Regulating a natural monopoly involves important choices because competition is not viable in the conventional sense. It wouldn't be practical or cost-effective to set up competing networks of foundational infrastructure, such as electrical grids. Therefore, monopolies in industries with such characteristics often require regulation to prevent abuse of market power and ensure fair pricing for consumers.