Natural monopolies:
A) produce the optimal quantity of output, unlike other monopolies.
B) exist when one firm can produce the market output at a lower cost than two or more firms.
C) generally experience large diseconomies of scale, leading to production inefficiencies and work stoppages.
D) face market demand curves that are perfectly elastic.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single company can supply the entire market demand at a lower cost than two or more firms. Due to economies of scale, the average cost of production decreases as the quantity produced increases, allowing the natural monopolist to charge a lower price and still make a profit. As a result, there is no room for another competitor to enter the market and make a profit, leading to a monopoly situation.

Natural Monopolies