1)The simplest way for a monopoly to arise is for a single firm to:

a. Decrease its prices without consulting other firms,

b. Decrease production to increase demand for its product,

c. Jointly make pricing decisions with other firms,

d. Own a key resource.

2)A natural monopoly occurs when:

a. The product is sold in its natural state (such as water or diamonds),

b. There are economies of scale over the relevant range of output,

c. The firm is characterized by a rising marginal cost curve,

d. Production requires the use of free natural resources, such as water or air.

1)d. Own a key resource

No firm could be regarded as the monopoly firm if the firm cannot impose some restrictions on the entrance of new firms. Therefore, if the firm intakes ownership of the key resource, that is commonly used in the production of goods, then the firm could have the title of monopoly. This type of monopoly may be regarded as a natural monopoly.

2)A natural monopoly occurs when: b. there are economies of scale over the relevant range of output,

The various forms of monopoly prevalent are a natural monopoly and regional monopoly.

The characteristics of a natural monopoly are

• There will be one firm providing a service or product
• There will be a high fixed cost and low variable cost
• As the production output increase, the long-run average cost will decrease indicating production efficiency.

The natural monopoly will result in increasing returns to scale at all levels of output.