A market is a natural monopoly when
A) A good is produced most economically by several firms
B) A good is produced most economically by one firm
C) The government grants a firm a patent on a good
D) The firm's average cost function is everywhere upward sloping

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce a good or service at a lower cost than any potential competitor. This is often due to economies of scale, where production costs decrease as the volume of output increases. As a result, it is most efficient for the market to be served by a single firm rather than several competing firms. Therefore, the best choice is answer B, where a good is produced most economically by one firm.

A Market Is a Natural Monopoly When