A basic characteristic of natural monopoly is
A) that the firm has control over the entire supply of a basic input.
B) that a firm is protected by a government franchise.
C) patent protection of certain basic processes.
D) continuously decreasing average costs as the firm expands output.
E) collusion with other competitors in an attempt to divide up the market.

Question

Quizplus · Accepted Answer

Natural monopoly is characterized by continuously decreasing average costs as the firm expands output. This is due to the presence of high fixed costs that are spread over a large output, leading to economies of scale that make it difficult for other firms to enter the market and compete with the incumbent firm.

A Basic Characteristic of Natural Monopoly Is