A natural monopoly is characterised by large fixed costs relative to variable costs.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a firm has high fixed costs (such as infrastructure investments) that make it difficult or inefficient for competitors to enter the market. This results in the firm having a considerable market share and being the sole provider of a good or service. The firm's high fixed costs also mean that its average total cost decreases as it produces more, allowing it to achieve economies of scale.

A Natural Monopoly Is Characterised by Large Fixed Costs Relative