Question

The cable company must own a scarce resource. The cable company is experiencing diseconomies of scale. In order for a monopoly to exist in this case, the government must have intervened and created it. The cable company is experiencing economies of scale.

Answer 1

Answer:

It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers.

Explanation:

Answer 2

Answer:

Which of the following statements are true about the natural monopoly?

• The cable company is experiencing economies of scale.

Explanation:

Natural monopolies form when a company experiences economies of scale, and the cost for providing additional units of goods or services is really low compared to the investment required to start operating in the industry. If other firms try to enter the market, their costs will be extremely high and will start to lower only after serving a large share of the market. That is the reason why competition is discouraged.

This applies to many utilities companies, e.g. it is extremely expensive to lay out a water distribution system, but once it is operational, the costs of providing the service is extremely low.