What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
What will be an ideal response?
A natural monopoly arises when the production function exhibits economies of scale over the relevant range of market demand. The average cost of production is lower as the output produced increases. Consumers benefit from having one supplier because the supplier will be able to pass some of the cost savings to consumers.
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Indicate whether the statement is true or false
A free market fails when
A) firms that produce goods which create positive externalities go bankrupt. B) firms that produce goods which create negative externalities earn high profits. C) there is an external effect in either production, consumption, or both. D) there is government intervention.