Which of the following is a characteristic of a natural monopoly?
A) Marginal cost declines over large regions of output.
B) Average total cost declines over large regions of output.
C) The product sold is a natural resource such as diamonds or water.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market demand at a lower cost than two or more firms. This is usually due to economies of scale, which cause average total cost to decline over a large range of output. Marginal cost might decline over a large range of output, but this is not a definitive characteristic of a natural monopoly. The product sold is not necessarily a natural resource, as natural monopolies can occur in industries such as utilities or telecommunications.

Which of the Following Is a Characteristic of a Natural