A natural monopoly exists when
A)economies of scale are negligible
B)there are a few dominant firms that corner the market
C)one firm can produce the market output at lower average cost than two or more firms can
D)barriers to entry are low
E)only a few firms can minimize cost and maximize profit

Question

Quizplus · Accepted Answer

A natural monopoly exists when one firm can produce the market output at lower average cost than two or more firms can due to economies of scale. This means that as the firm produces more output, their per-unit cost decreases. This creates a barrier to entry for other firms since they would not be able to produce at the same low cost as the existing firm. Therefore, there is only one dominant firm in the market.

A Natural Monopoly Exists When