If the distribution of water is a natural monopoly, then

Question

Quizplus · Accepted Answer

(i) and (iii) are the correct choices.

(i) is correct because a natural monopoly occurs when there are high fixed costs of production and it is more efficient for one firm to serve the entire market.

(iii) is correct because the government may need to regulate the natural monopoly to prevent the firm from abusing its market power and charging monopoly prices.

(ii) is not correct because the fact that water is essential does not necessarily make it a natural monopoly. It is the high fixed costs of production that make it a natural monopoly.

If the Distribution of Water Is a Natural Monopoly, Then