Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
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Chapter 15, Problem 1CQQ
To determine

The cause of the natural Monopoly.

Expert Solution & Answer
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Answer to Problem 1CQQ

Option ‘d’ is correct.

Explanation of Solution

Option (d):

Natural monopoly exists due to higher cost of production, and an increase in the output will decrease the average total cost. Thus, option ‘d’ is correct.

Option (a):

Under Natural monopoly, firms can control either the price or quantity to increase the sales. If firms increase the price, then there will be a fall in the output leading to a decrease in the marginal revenue. Thus, option ‘a’ is incorrect.

Option (b):

When the large firms maximize its output by increasing their quantity output, then the marginal cost decreases due to the benefits of economies of scale under monopoly. Thus, option ‘b’ is incorrect.

Option (c):

Under Natural monopoly, firms can control either the price or quantity which allows the firm to increase the average revenue by increasing the price. Thus, option ‘c’ is incorrect.

Economics Concept Introduction

Concept introduction:

Monopoly: Monopoly is a market situation where a single firm exists with a large number of buyers without any available substitute.

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