Question

A natural monopoly, such as a local electricity provider, is the result of: i. a firm owning or controlling a key input used in the production process ii. economies of scale existing over a wide range of output iii. long-run average total costs declining continuously as output increases iv. long-run total costs declining continuously as output increases

Answer 1

A natural monopoly, such as a local electricity provider, is the result of long run average total costs declining continuously as output increases. The correct option among all the options that are given in the question is option "3". The initial cost of power generation and power distribution cost is high. Once the generation starts and the number of consumer increases, the average cost starts declining.