AWhat Is the Defining Characteristic of a Natural Monopoly

question 2

Essay

a.What is the defining characteristic of a natural monopoly?
b.Should the government break up a natural monopoly into two or more firms to make the industry more competitive?
c.Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to consumers.To achieve this goal, it requires that the natural monopoly set its price equal to marginal cost.Is this a feasible goal? Explain.
d.What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining average total cost?

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Definitions:

Market Price

The present cost at which a product or service is available for purchase or sale in a specific market.

Product Sellers

Entities that offer goods or services for sale to consumers.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period, consisting of expansion and contraction phases.

Credit Expansion

refers to the increase in the availability of loans or credit in an economy, often leading to increased investment and consumption.