Additional firms often do not try to compete with a natural monopoly because
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 natural monopolist enjoys.
D) the natural monopoly doesn't make a huge profit.

Question

Quizplus · Accepted Answer

Natural monopolies often have significant barriers to entry such as high fixed costs, specialized equipment or technological superiority. Because they have already established low costs, it is difficult for new firms to achieve the same level of efficiency. This means that they will not be able to compete effectively on price, and hence it would be difficult for them to attract customers. Therefore, it is not worth investing in the market for most firms, as they are unlikely to be able to make a profit.

Additional Firms Often Do Not Try to Compete with a Natural