Which of the following is an example of a natural monopoly?
A) the trademark protecting Gatorade
B) the talents of Tom Hanks
C) the local water company
D) the patent on an Intel processor
E) De Beers' ownership of a large fraction of the world's diamonds

Question

Quizplus · Accepted Answer

A natural monopoly is a market situation in which the economies of scale are so large that one company can provide a good or service to the entire market at a lower cost than two or more companies could. Local water companies often have this characteristic as it is expensive and impractical for multiple companies to provide water to the same area. Therefore, local water companies are an example of a natural monopoly. The other options do not have the same economies of scale that would make them natural monopolies.

Which of the Following Is an Example of a Natural