A natural monopoly, such as the local telephone company, is characterized by
A)a lack of natural competitors
B)low fixed costs and diseconomies of scale
C)economies of scale
D)a lack of government regulation
E)constant costs of production

Question

Quizplus · Accepted Answer

A natural monopoly is characterized by economies of scale, meaning that the cost per unit of output decreases as the level of production increases. This makes it difficult for potential competitors to enter the market and compete effectively. Therefore, there is a lack of natural competitors. The local telephone company is an example of a natural monopoly because it requires a large initial investment in infrastructure (e.g. telephone wires and equipment) which can be spread over a large customer base, resulting in lower costs per unit.

A Natural Monopoly, Such as the Local Telephone Company, Is