Natural monopolies occur when a single or a few firms can take advantage of economies of scale and supply the entire industry output.

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Natural monopolies occur when a single or a few firms have such a high proportion of total industry output that it is not profitable for other firms to enter the market. This usually happens when the industry experiences significant economies of scale, where the cost of production decreases as the amount produced increases. As a result, the larger firm/s can produce the entire output of the industry at a lower cost per unit than if multiple smaller firms were producing the same output.

Natural Monopolies Occur When a Single or a Few Firms