Practice Questions
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Which of the following is a characteristic of a natural monopoly?
A natural monopoly happens when a company has high fixed costs, like building a power plant, but low costs to serve each new customer. Other options a...
Which of the following best explains why natural monopolies arise in the context of barriers to entry and the long-run average cost curve?
A single company can produce enough goods for everyone at a lower cost than many companies. Other options are incorrect because Some might think that ...
Which of the following is a characteristic of natural monopolies, particularly in the context of public utilities?
Natural monopolies have high fixed costs, like building power plants, but low costs for each extra customer. Other options are incorrect because Some ...
Which of the following best describes the impact of regulation on consumer welfare in the context of natural monopolies?
Regulation can help lower prices and improve services for consumers. Other options are incorrect because Some people think regulation always raises pr...
In the context of natural monopolies, how does the long-run average cost curve influence competition policy decisions regarding market entry?
A single company can produce goods at a lower cost than many companies. Other options are incorrect because Some might think many companies can work w...
What is a natural monopoly?
A natural monopoly happens when one company can make products cheaper than many companies. Other options are incorrect because Some might think that g...
Which of the following is a characteristic of a natural monopoly?
A natural monopoly happens when a company has very high costs to start but low costs to keep running. Other options are incorrect because Some might t...
Which of the following best describes a barrier to entry in the context of natural monopolies?
High fixed costs are expenses that must be paid before a company can start selling anything. Other options are incorrect because Having many competito...
Arrange the following steps in the correct order to explain how a natural monopoly can lead to market inefficiencies: A) The firm sets prices above marginal cost, B) The firm experiences economies of scale, C) Consumers have limited choices, D) The firm becomes the sole supplier of the market.
A natural monopoly starts when a firm experiences economies of scale. Other options are incorrect because This option suggests that the firm sets pric...
In a natural monopoly, why is it often more efficient for a single firm to serve the entire market rather than multiple firms?
A single firm can produce goods at a lower cost when it makes a lot of them. Other options are incorrect because Some people think that more companies...
Which of the following statements are true regarding natural monopolies? Select all that apply.
Other options are incorrect because Some might think that natural monopolies always lower prices; It's a common belief that competition is always good...
Which of the following scenarios best illustrates a natural monopoly, and why does it fit this classification?
A natural monopoly happens when one company can provide a service better than many. Other options are incorrect because This option suggests that uniq...
Natural monopolies are to market efficiency as public goods are to what?
Public goods are non-excludable, meaning no one can be stopped from using them. Other options are incorrect because Some might think public goods work...
A new city is planning to establish a public transportation system. City planners are debating whether to allow multiple private companies to operate bus services or to create a single public entity to manage the entire system. Considering the principles of natural monopolies, which option would likely lead to the most efficient outcome for the residents, and why?
A single public entity can manage the bus system more efficiently. Other options are incorrect because The idea that competition always improves servi...
In a natural monopoly, a single firm can serve the entire market demand at a lower cost due to _____, which allows it to produce more efficiently than multiple firms could.
Economies of scale happen when a company produces more goods and lowers the cost per item. Other options are incorrect because Diminishing returns mea...
In the context of natural monopolies, why might government regulation be necessary?
A natural monopoly can control the market. Other options are incorrect because Some think regulation should always promote competition; It's a common ...
What is the primary reason that natural monopolies can lead to lower prices for consumers compared to competitive markets?
A single firm can produce a lot of goods at a lower cost. Other options are incorrect because Some might think a monopoly always raises prices; It's a...
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