What is a key criterion involved in deciding a natural monopoly?
A)Size of the firm relative to its competitors
B)Size of the firm relative to the total market demand for a product
C)Magnitude of profits generated by the company
D)A firm's ability to adapt to market changes

Question

Quizplus · Accepted Answer

The key criterion involved in deciding a natural monopoly is the size of the firm relative to the total market demand for a product. A natural monopoly arises when a single firm is able to supply the entire market at a lower cost than any potential competitor. This is often the case in industries where there are high fixed costs and economies of scale, such as utilities or transportation. As the firm's size relative to the total market demand increases, its average cost of production decreases, making it difficult for new competitors to enter the market and challenging for existing competitors to remain profitable.

What Is a Key Criterion Involved in Deciding a Natural