What is true in a market characterized by a natural monopoly?
A)The firm is always extremely large
B)The existence of economies of scale over the entire market demand
C)The size of the firm's profits
D)The amount of innovation carried out by the firm

Question

Quizplus · Accepted Answer

In a market characterized by a natural monopoly, there are high barriers to entry due to the existence of economies of scale over the entire market demand. This means that the firm can produce output at a lower average cost than any potential competitor, making it difficult for new firms to enter the market and compete. This leads to a situation where a single firm dominates the market and earns significant profits. The size of the firm and its profits may vary depending on the level of regulation and pricing practices. The amount of innovation carried out by the firm may also vary, but it is not necessarily true in all cases.

What Is True in a Market Characterized by a Natural