A natural monopoly
A) is not protected by any barrier to entry.
B) exists because of legal barriers to entry.
C) is an industry in which economies of scale exist at the level of output where the market demand curve intersects the long-run average cost curve.
D) is an industry where two or more smaller firms can supply the market at a lower cost than one big firm could.

Question

Quizplus · Accepted Answer

A natural monopoly exists when economies of scale exist at the level of output where the market demand curve intersects the long-run average cost curve. In such an industry, a single large firm can produce at a lower cost than two or more smaller firms, making it the most efficient market structure. It is not protected by any legal barriers to entry, unlike a legal monopoly, which may be protected by patents, licenses, or government regulations. Option A is incorrect as a natural monopoly is protected by economies of scale. Option B is incorrect as it implies that a natural monopoly is created by legal barriers to entry, whereas it arises from the industry's characteristics. Option D is incorrect as it contradicts the definition of a natural monopoly.

A Natural Monopoly