Natural monopoly is characterized by:
A)decreasing average total cost and a long-run average cost curve being positively sloped and steep.
B)decreasing average total cost and low and increasing marginal cost.
C)decreasing average total cost and a long-run average cost curve being negatively sloped and steep.
D)increasing average total cost and large and increasing marginal cost.

Question

Quizplus · Accepted Answer

Natural monopoly occurs when a single firm can produce output at a lower cost than any potential competitor due to large economies of scale. As output increases, the average total cost decreases, and the long-run average cost curve is negatively sloped and steep. This means that production is most efficient at a large scale, and any new firm entering the market would face prohibitively high costs to compete. Therefore, a natural monopoly firm has the ability to charge a price higher than its marginal cost, leading to allocative inefficiency.

Natural Monopoly Is Characterized By