Which attribute does a firm that is a natural monopoly have
A)It is very likely to be concerned about new entrants eroding its monopoly power.
B)It is taking advantage of loyal consumers.
C)It would experience lower average total revenue if more firms entered the market.
D)It experiences economies of scale.

Question

Quizplus · Accepted Answer

A natural monopoly is a market where a single firm can produce the entire output at a lower cost than any combination of two or more smaller, competing firms. This is due to the presence of economies of scale. As a result, if more firms entered the market, the average total revenue would decrease, making it less profitable for them to compete with the existing natural monopolist. The concerns about new entrants eroding its monopoly power and the exploitation of loyal consumers are both potential behaviors of natural monopolies, but they are not defining attributes.

Which Attribute Does a Firm That Is a Natural Monopoly