When a natural monopoly exists in a given industry, the per-unit costs of production will be
A) lowest when there are a large number of producers in the industry.
B) lower for the smaller firms than for larger firms.
C) minimized at the output that maximizes the industry's profitability.
D) lowest when a single firm generates the entire output of the industry.

Question

Quizplus · Accepted Answer

Natural monopolies occur where the highest efficiencies are gained by having a single firm produce the entire output, due to economies of scale. This means per-unit costs decrease as the firm's size increases, making it most efficient for one firm to serve the entire market.

When a Natural Monopoly Exists in a Given Industry, the Per-Unit