1. Which of the following total cost functions suggests the presence of a natural monopoly? a. TC...

Question:

1. Which of the following total cost functions suggests the presence of a natural monopoly?

a. TC = 50Q

b. TC = 50 + 20Q

c. TC = 50 + 20Q(squared)

d. All of the above functions suggest the presence of a natural monopoly.

e. None of the above functions suggest the presence of a natural monopoly.

Natural Monopoly:

A natural monopoly exists when the average total cost (i.e., ATC = TC / Q) is decreasing for a very long horizon of production. It is called natural monopolist becuse other firms could not survive in this market. The reason is that the natural mopologist could lower the market price (because of its decreasing per unit of production) and cause the new entrants to leave the market.

Answer and Explanation:

Based on the given TC equations, we have:

a. ATC is constant at 50: {eq}TC+50Q → ATC=50 {/eq}

b. ATC is continously decresing: {eq}TC = 50 +...

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Natural Monopoly in Economics: Definition & Examples

from Intro to Business: Help and Review

Chapter 3 / Lesson 13
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