Question

Which reason best explains the purpose of natural monopolies?

To avoid surpluses and shortages points
To control prices and avoid surpluses
To ensure efficiency and reliability in production
To reduce competition and control prices

Answer 1

Natural monopolies exist to ensure efficiency and reliability in markets with high fixed costs and low variable costs, leading to a situation where a single supplier is more cost-effective than multiple competitors.

Step-by-step explanation:

The main reason natural monopolies are formed is to ensure efficiency and reliability in the provision of certain goods and services that have high fixed costs and low variable costs. With the cost structure of a natural monopoly, one firm can supply the entire market demand at a lower cost than if there were multiple competing firms. This typically occurs in industries like utilities, where the infrastructure costs are high, and marginal costs of serving an additional customer are relatively low. Therefore, natural monopolies are often regulated to prevent the high prices and limited output that could occur if such a company were left unregulated.

Answer 2

The correct answer is To reduce competition and control prices

The purpose of a natural monopoly is to ensure the lowers possible prices which would not be able in a competing society.