A natural monopoly has increasing returns to scale so that a large producer has a relatively low average total cost.

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A natural monopoly occurs when a single firm can produce a good or service at a lower cost than any potential competitor, due to economies of scale or other barriers to entry. Increasing returns to scale means that as a firm increases production, its average total cost decreases. Therefore, a natural monopoly will have a relatively low average total cost as a large producer.

A Natural Monopoly Has Increasing Returns to Scale So That