In a natural monopoly:
A) Society would be better off if antitrust laws were used to create many different firms in the market
B) The marginal cost curve is positively sloped
C) If the government requires marginal cost pricing, it must pay the monopolist subsidy
D) The marginal revenue curve is horizontal
I picked C?
I agree
In a natural monopoly, the correct statement is actually none of the above options. Let me explain why:
A) Society would not be better off if antitrust laws were used to create many different firms in the market. In a natural monopoly, there are high fixed costs and economies of scale, which means that it is more efficient for a single firm to produce the entire output for the market. Introducing competition in such a market would lead to duplication of resources and potentially higher costs for consumers.
B) The marginal cost curve is not necessarily positively sloped in a natural monopoly. In fact, natural monopolies typically have decreasing marginal costs due to economies of scale. This means that the cost of producing an additional unit of output decreases as the firm produces more.
C) If the government requires marginal cost pricing, there is no need to provide a subsidy to the monopolist. Marginal cost pricing means that the monopolist sets the price of its product equal to its marginal cost of production. This would result in the firm earning zero economic profit, but there is no need for a subsidy because the firm covers its costs.
D) The marginal revenue curve is not necessarily horizontal in a natural monopoly. It depends on the market demand curve. However, it is true that the monopolist, in order to maximize its profit, would produce where marginal revenue equals marginal cost. This rule applies to all firms, including monopolies.
Therefore, the correct answer is none of the above options.