When does a natural monopoly occur
A)when the product is sold in its natural state (such as water or diamonds)
B)when there are economies of scale over the relevant range of output
C)when the firm is characterized by a rising marginal-cost curve
D)when production requires the use of free natural resources, such as water or air

Question

Quizplus · Accepted Answer

A natural monopoly occurs when there are economies of scale over the relevant range of output. This means that as the firm produces more and more, its average cost of production decreases. This can be due to factors such as specialized equipment, infrastructure, or technology that are costly to duplicate. As a result, it becomes increasingly difficult for competitors to enter the market and compete effectively with the monopolist.

When Does a Natural Monopoly Occur