A natural monopoly is defined as an industry in which:
A)regulatory barriers to entry prevent the operation of more than one firm.
B)the marginal cost curve of the dominant firm is upward sloping.
C)the monopoly firm is not regulated by the government.
D)the average cost of the firm declines over the entire range of market demand.

Question

Quizplus · Accepted Answer

In a natural monopoly, the average cost of production declines over the entire range of market demand due to economies of scale. This means that the dominant firm can produce at a lower cost than any potential new entrants, making it difficult for other firms to compete in the market without incurring losses. Regulatory barriers may exist, but they are not the defining characteristic of a natural monopoly. The shape of the marginal cost curve is not relevant in determining whether an industry is a natural monopoly. Finally, government regulation may or may not be present in a natural monopoly, but it is not a necessary condition for one to exist.

A Natural Monopoly Is Defined as an Industry in Which