Which of the following total cost functions suggests the presence of a natural monopoly?

A. TC = 50Q
B. TC = 50 + 20Q
C. TC = 50 + 20Upper Q squared
D. All of the above functions suggest the presence of a natural monopoly.
E. None of the above functions suggest the presence of a natural monopoly.

A Natural Monopoly is generally associated with a firm that has very high initial fixed costs. These costs are generally related to the use of high scale technology or machinery to operate effectively.

Some examples include, gas pipelines, electricity grids, and the like.

They act as both a deterrent for companies to join the market as well as to exit.

Option B shows the typical Total Cost function of a Natural Monopoly and reflects the high initial costs as well.

codiepienagoya codiepienagoya · Answer 2 · 2021-12-01T00:19:01+01:00

In a particular market, a monopoly firm occurs if a single firm can serve that market at a cheaper price than any combination of more than two firms.

A "cost function" is a function between input costs and output amount whose value is the cost of producing that product given those input costs.
It would be frequently used by companies to reduce costs and maximize production efficiency through the use of the cost curve.
Since a natural monopoly is a monopoly firm that has a high fixed cost or startup cost for running a business over time. As result, [tex]\bold{TC= 50 +20Q}[/tex], showing a greater amount of total cost.

Therefore, the final answer is "Option B".

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