Chapter 14R, Problem 16MCQ

To determine

The correct option which states that a natural monopoly is accurate.

Answer to Problem 16MCQ

From the available options, the correct option is the cost of producing any given quantity of the good produced by the natural monopoly would increase if multiple firms produced it.

Explanation of Solution

By lessening competition, FTC such Clayton Act bans mergers and acquisitions to deal with predatory monopolies. Marginal cost pricing will not lead to an efficient outcome but allocate resources. And, there is no such requirement to produce quantity where MC = MB and average cost pricing strategy is used in an oligopoly, not in a natural monopoly.

But the cost of production of the good would increase if many firms produce it in natural monopoly because one firm is much more efficient to produce good as compared to many firms. It means all options: a, b, d, and e are incorrect.

Therefore, the correct option is c (the cost of producing any given quantity of the good produced by the natural monopoly would increase if multiple firms produced it).

Economics Concept Introduction

Introduction: A monopoly that involves high start-up costs and barriers to entry and provides the largest supplier in any industry is called a natural monopoly because it covers powerful economies of scale to conduct the business.