In a natural monopoly,
A)marginal costs follow variable costs.
B)total costs are large compared to fixed costs.
C)fixed costs are large compared to variable costs.
D)variable costs are large compared to fixed costs.
E)total costs are small compared to variable costs.

Question

Quizplus · Accepted Answer

In a natural monopoly, fixed costs are the dominant cost factor, making up a large portion of total costs. This is because natural monopolies often involve high initial investments in infrastructure or equipment, which are difficult for new competitors to replicate. As a result, the natural monopoly can generate economies of scale and produce goods or services at a lower cost than potential competitors. Because variable costs are typically lower in natural monopolies than in other industries, price tends to be set based on the fixed costs of production.

In a Natural Monopoly