Question

1.) A good example of a natural monopoly is a. Cable service to your house b....

1.) A good example of a natural monopoly is

a. Cable service to your house

b. Ocean front property

c. Lumber production

d. Kitchen appliances

2.) Explain in words why you will find prices that don't change for candy bars and why the price is the same for Nestle and Hershey candy bars.

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Answer #1

1) A natural monopoly is defined as when there is high fixed cost. ALSO, A company with a natural monopoly can be the only provider or a product or service in an industry or geographical location.

Hence, option B is correct that is ocean front property.

2) Prices do not change for candy bars because the current prices are the equilibrium prices at which demand equals to supply and any change in price will lead to disequilibrium in the market.

And prices for both Nestle and Hershey candy is same because both these are perfect substitute to each other. Hence any increase in price of one candy will lead to decrease its quantity demanded and the whole market demand will shift towards the other candy.

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