Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will
A)result in lower prices for consumers under all circumstances.
B)result in higher average costs for each producer than if there were only a single producer.
C)result in all firms taking full advantage of economies of scale in the production of the good.
D)result in a more efficient outcome than the market with fewer producers.

Question

​Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will
A)​result in lower prices for consumers under all circumstances.
B)​result in higher average costs for each producer than if there were only a single producer.
C)​result in all firms taking full advantage of economies of scale in the production of the good.
D)result in a more efficient outcome than the market with fewer producers.

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce the output demanded by the market at a lower cost than multiple firms. In this case, having three producers may result in higher average costs for each producer than if there were only a single producer, as they may each be producing at a smaller scale and not fully taking advantage of economies of scale. This can lead to higher prices for consumers compared to a market with a single producer, as the higher average costs for each producer may result in higher prices to cover their expenses. Therefore, option B is the best choice.

​Suppose That a Market That Is a Natural Monopoly Has

Suppose That a Market That Is a Natural Monopoly Has