Question

Suppose a gas company has an established distribution network to supply natural gas to a particular region. This is likely to be a ______________ monopoly because only a single firm can cover its costs while producing at its __________________ A. Regional, maximum capacity

B. Local, optimal scle
C. National, peak efficiency
D. Global, minimal output

Answer 1

A natural monopoly is a type of monopoly that arises when average costs are declining over the range of production that satisfies market demand. In the case of a gas company with an established distribution network, it is likely to be a regional monopoly because only a single firm can cover its costs while producing at its maximum capacity.

Step-by-step explanation:

A natural monopoly is a type of monopoly that arises when average costs are declining over the range of production that satisfies market demand. This typically happens when fixed costs are large relative to variable costs.

In the case of a gas company with an established distribution network, it is likely to be a regional monopoly because only a single firm can cover its costs while producing at its maximum capacity. This means that no other firm can enter the market and compete effectively due to the high fixed costs involved in establishing a distribution network.