Additional firms often do not try to compete with a natural monopoly because
A)they fear retaliation in the form of pricing wars from the natural monopolist.
B)they are unsure of the size of the market in general.
C)they know they cannot achieve the same low costs that the natural monopolist enjoys.
D)the natural monopoly does not make a large profit.

Question

Quizplus · Accepted Answer

Additional firms do not try to compete with a natural monopoly because they cannot achieve the same low costs of production that the natural monopolist enjoys. This is due to the existence of economies of scale, which allow the natural monopolist to produce at a lower cost per unit than any potential competitor. As a result, competing firms would not be able to price their goods or services as low as the natural monopolist, and hence would not be able to attract customers.

Additional Firms Often Do Not Try to Compete with a Natural