Chapter 22: Problem 15

Which of the following is a natural monopoly? (LO6) a) The National Football League b) A local phone company c) DeBeers Diamond Company d) IBM

Short Answer

Expert verified

b) A local phone company

Step by step solution

Analyze Option A

The National Football League (NFL) is a professional sports league consisting of multiple teams in different cities. While the NFL has a monopoly on professional football in the United States, it is not a natural monopoly. The NFL's monopoly status is due to legal protections and exclusivity agreements rather than economies of scale or other factors that create a natural monopoly.

Analyze Option B

A local phone company can be considered a natural monopoly. This is due to the fact that a single phone company can provide the infrastructure and services at a lower cost than multiple companies. This is because dividing the infrastructure (like telephone poles, lines, and switching stations) among several companies would mean duplicating the resources and increase the costs associated with them.

Analyze Option C

DeBeers Diamond Company controls a significant portion of the global diamond market; however, it is not a natural monopoly. DeBeers' market share is due to its control of supply (through ownership of mines) and marketing efforts, rather than economies of scale or other factors that make it the most efficient provider of diamonds. Consequently, it is not a natural monopoly.

Analyze Option D

IBM is a multinational technology and consulting company that does not operate as a monopoly, either natural or otherwise. IBM competes with other companies in technology markets, and there are no significant economies of scale or other factors that would limit the number of competitors in the market.

Determine the Correct Answer

Based on our analysis, option B (A local phone company) can be classified as a natural monopoly. The other options do not fit the definition of a natural monopoly for various reasons explained in Steps 1, 3, and 4. Therefore, the correct answer is: b) A local phone company