To be a natural monopoly a firm must
A) control a key resource input.
B) have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms.
C) have significant network externalities.
D) be very large relative to the total market.

Question

Quizplus · Accepted Answer

A natural monopoly is a market situation where one firm can supply the entire market demand at a lower cost than two or more firms. This is typically achieved through economies of scale, which are cost advantages that arise when a firm produces at a larger scale. As the firm expands production, it can spread its fixed costs over more output, resulting in lower average costs. Therefore, the option B is the correct answer. While options A, C, and D may also contribute to a firm's monopoly power, they are not sufficient conditions for a natural monopoly.

To Be a Natural Monopoly a Firm Must