Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
High fixed costs and low marginal costs
B
Significant competition in the market
C
Constant demand regardless of price
D
Government regulation is unnecessary
Understanding the Answer
Let's break down why this is correct
Answer
A natural monopoly occurs when a single company can provide a good or service to an entire market more efficiently than multiple companies could. This usually happens in industries where the fixed costs of production are very high, making it difficult for new companies to enter the market and compete. For example, think about water supply; it requires expensive infrastructure like pipes and treatment plants. If several companies tried to build their own systems, it would be wasteful and costly, leading to higher prices for consumers. Therefore, having one company is often better for everyone, as it can keep costs lower and provide consistent service.
Detailed Explanation
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 are incorrect because Some might think that a natural monopoly has a lot of competition; People might believe that demand stays the same no matter the price.
Key Concepts
Characteristics of natural monopolies
Topic
Natural Monopolies
Difficulty
easy level question
Cognitive Level
understand
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