Additional firms often do not try to compete with a natural monopoly because
A)they fear retaliation in the form of pricing wars from the natural monopolist.
B)they are unsure of the size of the market in general.
C)they know they cannot achieve the same low costs that the monopolist enjoys.
D)the natural monopoly doesn't make a huge profit.

Question

Quizplus · Accepted Answer

Natural monopolies have such low costs due to the economies of scale they achieve by having such a large share of the market, that it is extremely difficult for smaller firms to compete on a cost basis. Thus, most additional firms will not try to compete with natural monopolies for fear of being unable to achieve the same low costs.

Additional Firms Often Do Not Try to Compete with a Natural