If a natural monopoly is broken up into many smaller firms then
A) the price will decrease.
B) the average total costs of production will increase.
C) efficiency will increase.
D) None of the above because it is illegal to break up a natural monopoly into smaller firms.

Question

Quizplus · Accepted Answer

A natural monopoly exists because a single firm can supply the entire market at a lower cost than multiple firms. Breaking it up would lead to higher average total costs due to the loss of economies of scale.

If a Natural Monopoly Is Broken Up into Many Smaller