Question

1a. In what type of industry does a natural monopoly arise?

A. An industry that produces a good and service considered a necessity by consumers.

B. An industry with patents.

C. An industry with very high variable costs.

D. An industry with very high fixed costs.

1b. Explain.

2a. Natural monopolies COULD arise in each of the following industries EXCEPT

A. the internet service industry.

B. the pharmaceutical industry.

C. the fashion industry.

D. the airline industry

2b. Why?

3. Why is marginal cost pricing (also known as competitive pricing) often NOT feasible in the case of natural monopolies?

A. Because consumers would protest any government price regulation.

B. Because natural monopolies have powerful lobbies to influence policymakers.

C. Because of political push-back from policy makers.

D. Because marginal cost for natural monopolies is relatively very low compared to their average production cost.

Answer 1

1) Natural monopolies COULD arise in each of the following industries EXCEPT

Solution: the fashion industry

Explanation: The natural monopolies often occurs in industries with high economies of scale and for the goods that need extremely high fixed costs of distribution which is not in the case of the fashion industry

2) In what type of industry does a natural monopoly arise?

Solution: An industry with very high fixed costs.

Explanation: A natural monopoly refers to a type of monopoly that exists as a result of the high fixed costs or start-up costs of operating a business in a typical industry. It reduces the competition due to high start up costs, high fixed costs and difficulty in obtaining the needed raw material.