Suppose that the quantity of natural gas demanded in a city is 70 billion cubicmeters when the price is $0.24 per cubic meter. The table below shows the totalcosts for a firm supplying natural gas to this market. Is the firm a naturalmonopoly?Quantity(billion m³)203040506070Total cost($ billion)4.56.9.012.015.519.5No, because two or more firms could satisfy the entire market demand at alower total cost than a single firm can.No, because two or more firms could satisfy the entire market demand at alower average total cost than a single firm can.Yes, because a single firm can satisfy the entire market demand at a lowertotal cost than two or more firms could.Yes, because a single firm can satisfy the entire market demand at a loweraverage total cost than two or more firms could.

Answered: Suppose that the quantity of natural…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the quantity of natural gas demanded in a city is 70 billion cubic
meters when the price is $0.24 per cubic meter. The table below shows the total
costs for a firm supplying natural gas to this market. Is the firm a natural
monopoly?
Quantity
(billion m³)
20
30
40
50
60
70
Total cost
($ billion)
4.5
6.
9.0
12.0
15.5
19.5
No, because two or more firms could satisfy the entire market demand at a
lower total cost than a single firm can.
No, because two or more firms could satisfy the entire market demand at a
lower average total cost than a single firm can.
Yes, because a single firm can satisfy the entire market demand at a lower
total cost than two or more firms could.
Yes, because a single firm can satisfy the entire market demand at a lower
average total cost than two or more firms could.

Expert Solution

Step 1: Define natural monopoly

A natural monopoly is a market structure where a single firm can efficiently provide a particular good or service at a lower cost than multiple firms due to substantial economies of scale.

This often arises in industries with high fixed costs and low marginal costs, such as utility services and infrastructure development. Natural monopolies may be regulated to ensure fair pricing and access to essential services.

Given information:

The table for the total cost of the firm supplying natural gas is given in the question.

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