A monopolist's TC function and MC functions are as follows: TC = 20 + 4Q and MC = 4. This monopolist can be said to have which of the following characteristics?
A) It must be producing at the socially optimal level of output.
B) It is a natural monopoly.
C) The marginal cost curve rises at an increasing rate.
D) It is one of two firms in the industry.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market at a lower cost than any combination of two or more firms. Here, the constant marginal cost (MC = 4) and the total cost function (TC = 20 + 4Q) suggest that the firm has economies of scale over the relevant range of output, which is characteristic of a natural monopoly.

A Monopolist's TC Function and MC Functions Are as Follows