A firm that is a natural monopoly:
A)is not likely to be concerned about new entrants eroding its monopoly power
B)is not enjoying economies of scale
C)it tends to drive down wages
D)can lower its average total cost if more firms enter the market

Question

Quizplus · Accepted Answer

A natural monopoly exists when one firm can produce the entire output of the market at a lower cost than two or more firms. Due to high fixed costs, the firm is already producing at the minimum efficient scale, making it difficult for new entrants to compete. Therefore, the firm is not likely to be concerned about new entrants eroding its monopoly power.

A Firm That Is a Natural Monopoly