If the distribution of water is a natural monopoly, then (i)
Multiple firms would likely each have to pay large fixed costs to develop their own network of pipes.
(ii)
Allowing for competition among different firms in the water-distribution industry is efficient.
(iii)
A single firm can serve the market at the lowest possible average total cost.
A)(i) and (ii) only
B)(ii) and (iii) only
C)(i) and (iii) only
D)(iii) only

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply a good or service to an entire market at a lower cost than could multiple firms, due to high fixed costs and economies of scale. Therefore, (i) and (iii) are correct.

If the Distribution of Water Is a Natural Monopoly, Then