A natural monopoly
A) has one lowest-cost producer in the industry.
B) exists only when it is regulated.
C) has long-run average costs equal to zero.
D) always experiences diseconomies of scale.
Answer: A
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Firm A is a monopoly because of network effects, whereas Firm B is a natural monopoly. Which of the following statements is likely to be true in this context?
A) The average total costs of both firms decrease as they increase their output. B) The value of the product that both firms produce increases with an increase in the number of buyers. C) Firm A enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm B enjoys a monopoly status because the value of its product increases as more consumers buy it. D) Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases as more consumers buy it.
The kinked demand curve is based on the idea that
A) you will follow my price increase but not my price cut. B) you will follow my price cut but not my price increase. C) you will follow all price changes I might initiate. D) you will not follow my behavior at all.