A natural monopoly is most likely to occur in which of the following industries?

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a firm has a very high fixed cost relative to its variable cost. The larger the fixed cost, the smaller the average total cost, which means that a firm can produce and sell its products at a lower cost than any potential competitor. Therefore, it is most likely to occur in an industry where fixed costs are very large relative to variable costs, such as utility companies that require significant infrastructure or transportation companies that require expensive equipment. None of the other options listed have the necessary conditions for a natural monopoly to occur.

A Natural Monopoly Is Most Likely to Occur in Which