A natural monopoly occurs whenA. production requires the use of free natural resources, such as water or air. B. the firm is characterized by a rising marginal cost curve. C. there are economies of scale over the relevant range of output. D. the product is sold in its natural state, such as water or diamonds.

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Social Studies

Bradley Moreno

21 September, 09:09

A natural monopoly occurs whenA. production requires the use of free natural resources, such as water or air. B. the firm is characterized by a rising marginal cost curve. C. there are economies of scale over the relevant range of output. D. the product is sold in its natural state, such as water or diamonds.

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Jayvon Ortiz · Answer 1

C. there are economies of scale over the relevant range of output.

Explanation:

An industry is a natural monopoly when a single company can deliver a good or service to an entire market at less than two or more companies. A natural monopoly arises when there are economies of scale for the entire relevant range of production.

An example of a natural monopoly is in water distribution. To bring water to city dwellers, a company needs to build a pipeline network. If two or more companies competed to provide this service, each company would have to pay a fixed cost of building the network. Thus, the average total cost of water is lower if only one company supplies the market, which represents an economy of scale.