An industry is a natural monopoly when which of the following is(are) true?
(i) a single firm will supply a good or service at a socially optimal quantity
(ii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms
(iii) a single firm can produce additional units at a smaller marginal cost
A)(i) and (ii)
B)(ii) only
C)(ii) and (iii)
D)(iii) only

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms (ii). This is due to economies of scale, where the firm can achieve a lower average cost per unit as they increase production. It is not necessarily true that a single firm will supply at a socially optimal quantity (i) or that they can produce additional units at a smaller marginal cost (iii).

An Industry Is a Natural Monopoly When Which of the Following