In order for a natural monopoly to develop, it
A)is important that the firm be very large.
B)is important that the firm prices its product below cost.
C)is not the absolute size of the firm but its size relative to the total market demand that is important.
D)must be in the presence of government intervention.

Question

Quizplus · Accepted Answer

A natural monopoly develops when one firm can supply the entire market demand at a lower cost than two or more firms. The size of the firm relative to the total market demand is what is important, not the absolute size of the firm. The firm pricing its product below cost is not necessary for a natural monopoly to develop, and government intervention may or may not be present.

In Order for a Natural Monopoly to Develop, It