When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale,
A) the firm is a natural monopoly.
B) there are close substitutes for the good the firm produces.
C) firm is a single-price monopoly.
D) firm is well protected from competition by a legal barrier.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a firm experiences economies of scale over the entire range of production that is relevant to its market, making it the most efficient (and often the only) provider of a good or service. This situation typically limits the quantity that can be sold to an output level at which the firm can still benefit from economies of scale, preventing other competitors from entering the market due to the high costs associated with achieving similar scale.

When the Demand for a Good or Service Limits the Quantity