Figure 15-15

Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15.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 15-15
  
Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15.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, typically because average total cost continues to decline as output increases, which is the case when it intersects the demand curve.

Figure 15-15 Figure 15-15 Shows the Cost and Demand Curves for the and Demand