A natural monopoly exists whenever a single firm:
A)is owned and operated by the government.
B)is investor owned but has been granted the exclusive right by the government to operate in a market.
C)has economies of scale over the entire range of production that is relevant to its market.
D)has gained control over a strategic input of an important production process.

Question

Quizplus · Accepted Answer

A natural monopoly exists when there are economies of scale over the entire range of production, meaning that the firm can produce the entire output of the market at a lower cost than any potential competitor. This gives the single firm a significant advantage over potential rivals and makes it difficult for new firms to enter the market. Options A and B relate to different types of government involvement in the market, but do not necessarily indicate a natural monopoly. Option D describes a company with control over an important input, but does not necessarily indicate a natural monopoly unless that input is the only one necessary for production.

A Natural Monopoly Exists Whenever a Single Firm