Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It has high fixed costs and low marginal costs.
B
It is regulated by the government only during times of crisis.
C
It can sustain multiple firms competing in the market.
D
It operates in a perfectly competitive market.
Understanding the Answer
Let's break down why this is correct
Answer
A natural monopoly occurs when a single company can supply a good or service to an entire market at a lower cost than multiple companies could. This usually happens in industries where there are high fixed costs, like water or electricity, making it inefficient for several companies to compete. For example, building a water supply system requires a lot of money, and if several companies tried to build their own systems, it would be wasteful and lead to higher prices for consumers. Because of this, natural monopolies are often regulated by the government to ensure fair pricing for everyone. The key idea is that one provider can serve the whole area more efficiently than many competing ones.
Detailed Explanation
A natural monopoly has high fixed costs, like building a power plant, but low costs for each extra customer. Other options are incorrect because Some think a natural monopoly only needs government rules in emergencies; People might believe many companies can compete in a natural monopoly.
Key Concepts
natural monopoly
Topic
Pricing in Natural Monopolies
Difficulty
easy level question
Cognitive Level
understand
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