A natural monopoly
A)has an average cost curve that reaches minimum possible average cost at a low level of output.
B)has a marginal cost curve that is steeply upward sloping.
C)is usually subject to antitrust suits.
D)is usually allowed to choose its price so as to maximize profits in the United States.
E)occurs when a single firm can supply the entire market demand for a product at a lower average cost than would be possible if two or more firms supplied the market.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can supply the entire market demand for a product at a lower average cost than would be possible if two or more firms supplied the market. This is because natural monopolies often have high fixed costs that can only be spread over a large volume of output. As a result, their average cost curve may continue to decline as output increases, making it difficult for potential competitors to enter the market and compete with the incumbent firm. As a result, natural monopolies are often subject to regulation or public ownership to prevent them from charging excessive prices.

A Natural Monopoly