To be a natural monopoly, a firm must
A) control an essential natural resource input.
B) be very large.
C) have a continuously falling average cost curve as output rises.
D) have falling average costs over a substantial range of total market demand.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce a good or service at a lower cost than multiple firms. This is often due to economies of scale, which means that the average cost of production decreases as output increases. In order for a firm to be a natural monopoly, it must have falling average costs over a substantial range of total market demand. This means that the firm can produce the entire market demand at a lower cost than any other firm.

To Be a Natural Monopoly, a Firm Must