A single firm, protected by a barrier to entry, produces a personal service that

Question

A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes.

This is an example of ______.

A. either a natural monopoly or a legal monopoly that cannot price discriminate

B. a natural monopoly that can price discriminate

C. either a natural monopoly or a legal monopoly that can price discriminate

D. a legal monopoly that can price discriminate

E. a natural monopoly that cannot price discriminate

A firm that experiences economies of scale even when it produces the quantity that meets the entire market demand is an example of a natural monopoly.

A. True

B. False

Explanation / Answer

1. Correct option: (c) either a natural monopoly or legal monopoly which can price discriminate

Reason: Only legal or natural monopolies are single firm markets protected by entry barriers in the form of patents etc and are able to price discriminate because of high market power.

2. True

Reason: Natural monopolists face economies of scale in production along with initial high fixed costs.

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