The basic idea of a natural monopoly is that there is one producer, and new sellers are discouraged from entering the market because
A)they would have significantly higher marginal costs than the existing seller in the market.
B)there would be legal barriers against entering the market.
C)the current producer has a patent on its product.
D)the current producer is facing a rise in costs due to natural increases in the prices of inputs.

Question

Quizplus · Accepted Answer

In a natural monopoly, the existing seller in the market has significantly lower average costs than any potential new sellers due to economies of scale. This means that new sellers would have higher marginal costs to produce the same level of output, making them unable to compete with the existing producer. Therefore, option A is correct. Option B is incorrect because legal barriers are not necessarily a characteristic of a natural monopoly. Option C is incorrect because having a patent is not a necessary condition for a natural monopoly. Option D is also incorrect because a rise in costs due to natural increases in the prices of inputs is not a defining feature of a natural monopoly.

The Basic Idea of a Natural Monopoly Is That There