Under which circumstance can a firm that has a monopoly on water (which is a necessity) charge a high price for water
A)only if the marginal cost of producing water is high
B)even if the marginal cost of producing water is low
C)only if the firm is a natural monopoly
D)even if the demand for water is low

Question

Quizplus · Accepted Answer

A firm with a monopoly on water can charge a high price even if the marginal cost of producing water is low because water is a necessity and people are willing to pay a premium for it. The demand for water is relatively inelastic, meaning that even if the price goes up, people will still need to consume it. Therefore, the firm can charge a high price and still earn substantial profits. Additionally, the firm may have exclusive control over the distribution system that delivers the water to consumers, which can contribute to their pricing power, regardless of the cost of production.

Under Which Circumstance Can a Firm That Has a Monopoly