Chapter 77, Problem 2MCQ

To determine

The existence of natural monopoly.

Answer to Problem 2MCQ

From the available options, the correct option is the average total cost.

Explanation of Solution

In the existence of a natural monopoly, there is an increase in output level and over the relevant range which lower the average total cost because there is one seller who serves the entire market. Even if there is an enormous fixed cost in this market, the small size of this market decreases the total cost. The average variable, fixed, and marginal cost can increase in the long-term period of a natural monopoly.

Therefore, the correct option is b (average total cost).

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.