Economics · Microeconomics and Natural Monopoly
In the study of market failures and resource allocation, certain industries such as railways, power plants, and bridges exhibit specific technical characteristics where production processes cannot be reduced to small units. Which of the following best describes the market condition and production dynamics arising from these 'lumpy' or indivisible factors of production?
- 1Information asymmetry where post-contractual moral hazard leads to behavioral changes because the potential costs of risk-taking are borne by an uninformed insurer.
- 2Natural monopoly conditions arising from indivisibilities and increasing returns to scale, where average cost declines as output rises, allowing a single large firm to supply the market more cheaply than multiple small firms.✓
- 3The 'Tragedy of the Commons' where non-excludable but rivalrous resources are depleted because the private marginal cost of access exceeds the social marginal cost.
- 4Market failure caused by non-rivalry where the market demand curve is derived through the horizontal summation of individual willingness-to-pay curves.
Correct answer
Natural monopoly conditions arising from indivisibilities and increasing returns to scale, where average cost declines as output rises, allowing a single large firm to supply the market more cheaply than multiple small firms.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Want more practice questions on Microeconomics and Natural Monopoly?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Microeconomics and Natural Monopoly