1)A natural monopoly:

a. Is needed to make a profit in the long run,

b. Is an example of a government-created barrier,

c. Exists when a firm has sole ownership of a natural resource,

d. Exists when many sellers experience lower average total costs than potential competitors do,

e. Exists when a single seller experiences lower average total costs than any potential competitor.

2)For a monopolist, the price of a product:

a) Is less than the marginal revenue.

b) Exceeds the marginal revenue.

c) Equals the marginal cost.

d) Equals the marginal revenue.

1)The correct answer is e. Exists when a single seller experiences lower average total costs than any potential competitor.

A natural monopoly is created when the monopolist does not engage in any unfair practices to drive out or stop competition. Instead, such a monopoly occurs because it is much more cost-efficient for a single firm to operate than a number of smaller firms. This is because the single large firm enjoys such a high level of economies of production that no other firms can exist. Due to these economies of scale, the average cost of production is much lower than what any other firm can compete against.

2) For a monopolist, the price of a product b) Exceeds the marginal revenue.

A monopolist experiences a price effect. In other words, the monopolist has to reduce the prices to sell an additional unit of output. By selling an additional unit of output, the monopolist receives less revenue than before. At one point, the marginal revenue of monopolists becomes negative, and thus price becomes greater than the marginal revenue as prices cannot be negative.