When a natural monopoly exists, it is never more cost-effective for two or more private firms to produce the product.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when one firm can produce the entire output for a market more efficiently than two or more firms. As a result, it is not cost-effective for multiple firms to produce the product as they would have to duplicate fixed costs, leading to inefficiencies and higher costs.

When a Natural Monopoly Exists, It Is Never More Cost-Effective