A natural monopoly is characterized by
A) decreasing average total cost and a long-run average cost curve being positively sloped and steep.
B) decreasing average total cost and low and increasing marginal cost.
C) decreasing average total cost and a long-run average cost curve being negatively sloped and steep.
D) increasing average total cost and large and increasing marginal cost.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when one firm can produce the entire output of the market at a lower cost than two or more firms could, due to economies of scale. This results in a long-run average cost curve that is negatively sloped and steep, with decreasing average total cost. Marginal cost may be low and increasing or constant, depending on the specific industry. Option A and D are incorrect as they describe increasing average total cost, which is not characteristic of a natural monopoly. Option B is incorrect as it describes decreasing average total cost and low and increasing marginal cost, which is not consistent with economies of scale.

A Natural Monopoly Is Characterized by