A natural monopoly exists when
A) the firm holds a patent.
B) there are governmental entry restrictions.
C) the firm owns all of the raw materials needed to produce the product.
D) economies of scale occur.

Question

Quizplus · Accepted Answer

A natural monopoly exists when there are economies of scale, meaning that the firm can produce at a lower average cost than any potential competitor, even in the long run. This can lead to barriers to entry for new firms, allowing the existing firm to maintain a monopoly. Patent rights, government entry restrictions, and ownership of raw materials can also provide barriers to entry, but they do not necessarily create a natural monopoly.

A Natural Monopoly Exists When