Question

A natural monopoly is a market where:_____.a) a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms. b) many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm. c) many smaller firms can produce the entire market output at the same per-unit cost as could one large firm. d) a single firm has control over a vital natural resource.

Answer 1

Option (a) is correct.

Step-by-step explanation:

A natural monopoly refers to a market situation in which there is a single large firm controlling the whole market because it can produces the output at lower cost than any other group of small firms. There is only one single seller in the whole market.

It is a monopoly in which there is a high infrastructural costs and there is a restrictions on the entry of the new firms. This large firm have an overwhelming advantage on its potential competitors in the market.

Examples of industries in a situation of natural monopoly:

Public utilities: Water services and Electricity services.