Which of the following industries is a good example of a natural monopoly?
A) water systems
B) operating system software
C) military equipment sold to the federal government
D) none of the above

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than any combination of two or more firms. This is often the case in industries with high fixed costs and low variable costs, where the cost of infrastructure and entry barriers prevent new competitors from entering the market. Water systems are a good example of a natural monopoly because it is economically efficient for a single firm to provide water services over a large geographic area, and the cost of duplicating pipelines and distribution networks make it unlikely for competitors to enter the market. Operating system software and military equipment sold to the federal government are not good examples of natural monopolies, as there are often multiple companies offering competing products in these industries.

Which of the Following Industries Is a Good Example of a Natural