For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
A)the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
B)the average cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more produced in the same region.
C)the marginal cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more producers in the same region.
D)electricity producers have sharply increasing costs as production rises.

Question

Quizplus · Accepted Answer

Electricity producers were considered a natural monopoly because the average cost of producing electricity is lower when a single producer generates the electricity for a specific region, compared to when multiple producers are involved. This is due to economies of scale, where larger production volumes can reduce the cost per unit.

For a Long While, Electricity Producers Were Thought to Be