A natural monopoly occurs when
A)the product is sold in its natural state, such as water or diamonds.
B)there are economies of scale over the relevant range of output.
C)the firm is characterized by a rising marginal cost curve.
D)production requires the use of free natural resources, such as water or air.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when there are economies of scale over the relevant range of output, meaning the average costs of production decrease as the firm becomes larger. This makes it more efficient for a single firm to serve the entire market.

A Natural Monopoly Occurs When