Natural monopolies are distinguished by:
A) Zero fixed costs.
B) Increasing average total costs (ATC) over the entire range of output.
C) Decreasing average total costs (ATC) over the entire range of output.
D) The existence of only one firm in the industry.

Question

Quizplus · Accepted Answer

Natural monopolies are characterized by decreasing average total costs over the entire range of output. This happens because in a natural monopoly, fixed costs are high relative to variable costs, and once the firm reaches a certain level of output, it can spread those fixed costs over a larger output and achieve economies of scale. As a result, the average cost of production decreases as the output increases, which makes it difficult for other firms to enter the market and compete.

Natural Monopolies Are Distinguished By