Briefly explain how a natural monopoly arises
Industries exhibiting economies of scale that are large relative to the quantity demanded in the market are referred to as natural monopolies. Natural monopolies arise when average costs decline over the range of production that satisfies market demand. As a result, one firm is able to produce the total quantity demanded in the market at lower cost than two or more firms. Therefore, splitting up the natural monopoly would raise the average cost of production and force customers to pay more. Natural monopolies often arise in industries where the marginal cost of adding an additional customer is very low, once the overall system has been put in place. For example, once electricity lines are installed throughout a neighborhood, the marginal cost of providing additional electrical service to one more home is very low. It would be costly and duplicative for a second electricity company to enter the market and invest in a whole new set of electrical wires.
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All of the following reduce the transaction costs for consumers EXCEPT
A) eBay. B) a shopping mall. C) the Supreme Court decisions regarding the Second Amendment. D) a grocery store.
Inefficient use of resources leads to:
a. production bundles inside the production set. b. production bundles outside the production set. c. a reduction in the production set. d. production of a combination on the production set.
Which of the following would cause a leftward shift of the supply curve for computers?
a. an increase in the price of printed circuit boards used to build computers b. a decrease in the price of electricity c. an increase in incomes of consumers d. a decrease in the price of computers e. a decrease in the size of the population
If duopoly firms that are not colluding were able to successfully collude, then
a. price and quantity would rise. b. price and quantity would fall. c. price would rise and quantity would fall. d. price would fall and quantity would rise.