Question

In Galvania Republic, the federal government owns and manages all the nuclear power plants. This is because the business would not be profitable if there was more than one supplier in the nuclear power industry. Which of the following industry competitive structures does the scenario best illustrate?

a) Monopoly
b) Oligopoly
c) Perfect competition
d) Monopolistic competition

Answer 1

The situation in the Galvania Republic where the federal government owns and manages all nuclear power plants because multiple suppliers would not be profitable is indicative of a monopoly, particularly a natural monopoly.

Step-by-step explanation:

In the scenario presented, where the Galvania Republic's federal government owns and manages all nuclear power plants because it would not be profitable with multiple suppliers, best illustrates a monopoly. A monopoly exists in an industry when a single firm is the sole producer of a product for which there are no close substitutes. In the case of nuclear power in Galvania, the high fixed costs and the need for extensive and expensive infrastructure to safely manage nuclear power make it impractical to have multiple competing firms. This leads to a situation called a natural monopoly, where scale economies are so pronounced that the largest supplier has overwhelming cost advantages over any potential rivals.