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Question

In many sectors like national railway or electricity distribution, natural monopolies are beneficial because _________.


  1. greater supply would push prices up

  2. limited supply would push prices down

  3. the economies of scale helps drive the cost down.

  4. network externalities would help drive the costs down.


Solution

The correct option is C

the economies of scale helps drive the cost down.


In many sectors like national railway or electricity distribution, natural monopolies are beneficial because the economies of scale arising over the relevant range of output helps drive the cost down.

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