Figure 13.9

Figure 13.9 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 13.9.Erickson Power is a natural monopoly because
A)it is a power company and all power companies are natural monopolies.
B)average total cost is still declining when it intersects demand.
C)of its continually declining marginal revenue curve as output rises.
D)its marginal cost lies entirely below its long-run average cost.

Question

Figure 13.9
  
Figure 13.9 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 13.9.Erickson Power is a natural monopoly because
A)it is a power company and all power companies are natural monopolies. 
B)average total cost is still declining when it intersects demand. 
C)of its continually declining marginal revenue curve as output rises. 
D)its marginal cost lies entirely below its long-run average cost.

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market at a lower cost than any combination of multiple firms, which is typically due to economies of scale. In this case, the average total cost is still declining when it intersects the demand curve, indicating that one firm can serve the market more efficiently than multiple firms.

Figure 13.9 Figure 13.9 Shows the Cost and Demand Curves for the and Demand