When an industry is a natural monopoly,
A)it is characterized by constant returns to scale.
B)it is characterized by diseconomies of scale.
C)a larger number of firms may lead to a lower average cost.
D)a larger number of firms will lead to a higher average cost.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market at a lower cost than two or more firms. This is typically due to high fixed costs of production, such as infrastructure or research and development. As a result, a larger number of firms will lead to a higher average cost.

When an Industry Is a Natural Monopoly