What gives rise to a natural monopoly? How do consumers benefit ...

[Engineer]

What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
 
  What will be an ideal response?

Question 2

Firms such as Taco Bell and Chipotle operate hundreds of restaurants nationwide while firms such as El Pollo Loco operates only in five states. How would you characterize these stores?
 
  A) Taco Bell and Chipotle are duopolists while El Pollo Loco is a monopolistic competitor.
  B) They are all monopolistic competitors.
  C) Taco Bell and Chipotle are duopolists while El Pollo Loco is an oligopolist.
  D) Taco Bell and Chipotle are oligopolists while El Pollo Loco is a monopolistic competitor.

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Answer to Question 1

A natural monopoly arises when the production function exhibits economies of scale over the relevant range of market demand. The average cost of production is lower as the output produced increases. Consumers benefit from having one supplier because the supplier will be able to pass some of the cost savings to consumers.

Answer to Question 2

B