A natural monopoly occurs when a single firm can meet the entire market demand at a lower cost than any potential competitor. This means that the firm has a significant cost advantage due to economies of scale, and it is the lowest-cost producer in the industry.

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A Natural Monopoly

Question 115

Multiple Choice

A natural monopoly

A) has one lowest-cost producer in the industry.
B) exists only when it is regulated.
C) has long-run average costs equal to zero.
D) always experiences diseconomies of scale.

Correct Answer: