A natural monopoly arises when
A)there are constant returns to scale over the relevant range of output.
B)there are economies of scale over the relevant range of output.
C)one firm owns a key natural resource.
D)the government gives a single firm the exclusive right to produce a particular good or service.

Question

Quizplus · Accepted Answer

A natural monopoly arises when there are economies of scale, meaning that as a firm increases its level of output, it can produce each unit at a lower cost. This leads to a situation where a single firm can produce the entire market output at a lower cost than any potential competitor.

A Natural Monopoly Arises When