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Chapter 11: Q. 7 (page 272)

From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify.

Short Answer

Expert verified

No.

Step by step solution

01

Step1. Concept

A natural monopoly is one where a single firm is allowed to cater to the needs of entire large number of buyers. It is so because cost of production incurred by a natural monopolist is less than incurred by large number of producers.

02

Step2. Explanation

The average cost curve of a natural monopolist is always declining due to Economies of Scale being experienced by the natural monopolist firm.

But, in the graph plotted, the AC increases after 9 units of quantity.

Hence, it can't be said as a natural monopoly.

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Most popular questions from this chapter

Urban transit systems, especially those with rail systems, typically experience significant economies of scale in operation. Consider the transit system data in Table 11.4. Note that the quantity is in millions of riders.

Draw the demand, marginal revenue, marginal cost, and average cost curves. Do they have the normal shapes?

Is it true that the four-firm concentration ratio puts more emphasis on one or two very large firms, while the Herfindahl-Hirshman Index puts more emphasis on all the firms in the entire market? Explain briefly.

What is a corporate merger? What is an acquisition?

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ratio? What does a high measure mean about the extent of competition?

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