Which of the following statements correctly identifies the problem with regulating a natural monopoly?
A)It is difficult to identify a natural monopoly.
B)If a natural monopoly lowers its prices,it will have to shut down to cut losses.
C)The real cost of serving the market will be higher if there is more than one firm.
D)The cost of regulating a natural monopoly is lower than the welfare cost.

Question

Quizplus · Accepted Answer

Natural monopolies exhibit decreasing average costs over the range of demand for their product. This means that a single firm can produce the total output at a lower cost than if there were multiple firms in the industry. Thus, if there were more than one firm, the real cost of serving the market would indeed be higher, making C the correct choice.

Which of the Following Statements Correctly Identifies the Problem with Regulating