At what point does natural monopoly function?
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What is a natural monopoly? How does a natural monopoly lead to lower costs than would exist if there were more than one firm in an industry that is a natural monopoly?
An important reason for the economic regulation of the industry is the presence of a natural monopoly.
A. Briefly explain what is meant by a natural monopoly.
B. How is a natural monopoly efficient in one way but inefficient in another?
C. Discuss two ways in which a regulatory commission could eliminate the inefficiency associated with a natural monopoly.
D. Does your answer above meet the incentive regulation criteria?
Explain.
When does a natural monopoly arise?