A natural monopoly exists whenever a single firm:
A)is owned and operated by the federal or local government.
B)is investor owned but has been granted the exclusive right by the government to operate in a market.
C)has economies of scale over the entire range of production that is relevant to its market.
D)has gained control over a strategic input of an important production process.

Question

Quizplus · Accepted Answer

A natural monopoly arises when a firm has economies of scale over the entire range of production that is relevant to its market. This means that the firm can produce goods and services at a lower cost than any potential competitor, giving it a significant advantage in the market. Options A and B are not necessarily characteristics of a natural monopoly, and option D describes a situation where a firm has gained control over a strategic input, which may give it a competitive advantage, but does not necessarily create a natural monopoly.

A Natural Monopoly Exists Whenever a Single Firm