ECONOMICS
MARKET FAILURES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Low fixed cost
|
|
|
High fixed cost
|
|
|
Low variable cost
|
|
|
High variable cost
|
Detailed explanation-1: -A natural monopoly is a type of monopoly that arises due to unique circumstances where high start-up costs and significant economies of scale lead to only one firm being able to efficiently provide the service in a certain territory.
Detailed explanation-2: -Natural monopolies have high fixed costs compared to variable costs because it tries to maintain economies of scale. Fixed costs are costs that do not change with changes in other production factors or output quantity produced.
Detailed explanation-3: -A natural monopoly has a high fixed cost for a product that does not depend on output, but its marginal cost of producing one more good is roughly constant, and small.
Detailed explanation-4: -The firm owns a key resource, for example, Debeers and Diamonds. The firm receives exclusive rights by the government to produce a particular product. One producer can be more efficient than others due to the cost of production.