A natural monopoly exists whenever a single firm:
A) is owned and operated by the federal or local government.
B) is investor owned but granted the exclusive right by the government to operate in a market.
C) confronts economies of scale over the entire range of production that is relevant to its market.
D) has gained control over a strategic input of an important production process.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce at a lower cost than any potential competitor due to economies of scale, which means that as output increases, the average cost of production decreases. This gives the firm a significant advantage over competitors and hence the market becomes monopolized.

A Natural Monopoly Exists Whenever a Single Firm