Chapter 62, Problem 2MCQ

To determine

Characteristic of natural monopoly.

Answer to Problem 2MCQ

(e) The government must provide the good or service to achieve efficiency.

Explanation of Solution

Private monopoly charges a higher price than the marginal cost which makes worse-off consumers so to tackle the problem, public ownership is preferred which is called natural monopoly that means only government will provide that good to bring efficiency by proving that good at a lower price for the benefit of a larger section of the society.

Economics Concept Introduction

A natural monopoly is characterized by high fixed costs and economies of scale, and prices are set based on the criteria of efficiency rather than profit maximization and are generally found in public ownership.