For a firm to be a natural monopoly, a potential entrant's revenues are:
A)higher than its total costs.
B)lower than its total costs.
C)lower than its fixed costs.
D)higher than its fixed costs.

Question

Quizplus · Accepted Answer

For a firm to be a natural monopoly, it must have lower average total costs than any potential entrants. Thus, potential entrants' revenues would be lower than the natural monopoly's total costs if they were to enter the market, making option B the correct choice. If their revenues were higher than the monopoly's total costs, then they would also be able to operate at a profit and compete with the monopoly, which would not be consistent with a natural monopoly. The fixed costs are not a determining factor in whether a firm is a natural monopoly.

For a Firm to Be a Natural Monopoly, a Potential