Which of the following statements is true?
A) A natural monopoly always arises from government intervention in the market.
B) An increase in consumer demand can change a natural monopoly into a multiseller market.
C) A natural monopoly earns higher profits than a monopolistically competitive firm because it faces an upward-sloping market demand curve.
D) A natural monopoly earns higher profits than a monopolistically competitive firm because it faces a horizontal market demand curve.

Question

Quizplus · Accepted Answer

A natural monopoly arises when a single firm can produce goods or services more efficiently and at a lower cost than multiple firms in the market. It is not necessarily a result of government intervention. An increase in consumer demand can lead to more firms entering the market and competing with the natural monopoly, turning it into a multiseller market. A natural monopoly can earn higher profits than a monopolistically competitive firm because it faces a downward-sloping market demand curve, meaning it can charge higher prices without losing all customers to competitors. However, it does not face a horizontal demand curve, as that is characteristic of perfect competition.

Which of the Following Statements Is True