Question

From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify.

Short answer

The transit system is a natural monopoly.

Step-by-step solution

Definition

A monopoly occurs when there is only one vendor and no competition in the market. There is complete control over the supply of a commodity or service.

Explanation

A monopoly occurs when there is only one vendor and no competition in the market. Yes, the transit system is a natural monopoly because average costs fall over the range that meets market demand.

For example, the economics of scale is the intersection of the average cost curve and the demand curve.