A natural monopoly is characterized by large fixed costs relative to variable costs.

Question

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A natural monopoly occurs when one firm can produce a good or service at a lower cost than any potential competitor due to large fixed costs (such as infrastructure or technology) that cannot be easily replicated by new entrants. This results in high barriers to entry and the monopolist enjoys economies of scale that lead to lower costs per unit as output increases, making it difficult for competitors to compete on price.

A Natural Monopoly Is Characterized by Large Fixed Costs Relative