Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The single firm can exploit its market power to charge higher prices.
B
The economies of scale allow the firm to reduce costs as output increases.
C
Multiple firms can enter the market and drive prices down.
D
Government regulation always ensures lower prices in monopolistic markets.
Understanding the Answer
Let's break down why this is correct
Answer
Natural monopolies can lead to lower prices for consumers because they often have lower costs when producing goods or services than multiple competing companies would. This happens because a natural monopoly usually has a large infrastructure, like power lines or water pipes, that is expensive to build and maintain. If multiple companies tried to build their own infrastructure, it would be wasteful and lead to higher overall costs. For example, if only one company provides electricity in a town, it can spread its costs over all the customers, allowing it to charge lower prices than if several companies were competing. Therefore, in many cases, having one efficient provider can be better for consumers than having many companies trying to compete.
Detailed Explanation
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 common belief that competition always lowers prices.
Key Concepts
Natural Monopolies
Economies of Scale
Market Regulation
Topic
Natural Monopolies
Difficulty
hard level question
Cognitive Level
understand
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