A firm is likely to be a natural monopoly
A) when the demand for its product or service is inelastic.
B) if it is producing an inferior good.
C) if economies of scale are experienced over the full range of output.
D) because government grants it an exclusive franchise.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than any potential competitor. This is usually due to economies of scale, which occur when the average cost of production decreases as output increases. Therefore, the correct choice is C as it states that economies of scale are experienced over the full range of output. Choices A, B, and D do not accurately describe the conditions for a natural monopoly.

A Firm Is Likely to Be a Natural Monopoly