Question

if the distribution of water is a natural monopoly, then
a single firm cannot serve the market at the lowest possible average total cost.
average cost increases as the quantity of water produced increases.
multiple firms would likely each have to pay large fixed costs to develop their own network of pipes.
allowing for competition among different firms in the water - distribution industry is efficient.

Explanation:

To solve this, we analyze each option based on the concept of a natural monopoly:

1. A natural monopoly exists when a single firm can serve the market at a lower average total cost than multiple firms. So the first option is incorrect.
2. In a natural monopoly, average total cost decreases as quantity increases (economies of scale over a large range), so the second option is incorrect.
3. For water distribution, setting up pipe networks involves large fixed costs. If multiple firms exist, each would have to bear these high fixed costs, which is a characteristic of a natural monopoly situation. This option is correct.
4. Allowing competition in a natural monopoly is inefficient because of the high fixed costs and economies of scale, so the fourth option is incorrect.

Answer:

C. multiple firms would likely each have to pay large fixed costs to develop their own network of pipes.