Why do additional firms often NOT try to compete with a natural monopoly
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)They see that the natural monopoly doesn't make a huge profit.

Question

Quizplus · Accepted Answer

Natural monopolies are able to achieve economies of scale and thus have lower costs than potential competitors. New firms would face high fixed costs to enter the market and would struggle to achieve the same low costs as the existing monopoly. This makes it difficult for new entrants to compete, leading them to choose not to enter the market. Fear of retaliation and uncertainty about market size may also play a role, but the primary reason is the difficulty in achieving low costs.

Why Do Additional Firms Often NOT Try to Compete with a Natural