Concept explainers
The cause of the natural Monopoly .
Answer to Problem 1CQQ
Option ‘d’ is correct.
Explanation of Solution
Option (d):
Natural monopoly exists due to higher cost of production, and an increase in the output will decrease the
Option (a):
Under Natural monopoly, firms can control either the price or quantity to increase the sales. If firms increase the price, then there will be a fall in the output leading to a decrease in the marginal revenue. Thus, option ‘a’ is incorrect.
Option (b):
When the large firms maximize its output by increasing their quantity output, then the marginal cost decreases due to the benefits of economies of scale under monopoly. Thus, option ‘b’ is incorrect.
Option (c):
Under Natural monopoly, firms can control either the price or quantity which allows the firm to increase the average revenue by increasing the price. Thus, option ‘c’ is incorrect.
Concept introduction:
Monopoly: Monopoly is a market situation where a single firm exists with a large number of buyers without any available substitute.
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Chapter 15 Solutions
Principles Of Microeconomics 7th Edition
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