To be a natural monopoly, a firm must
A)control a key resource input.
B)have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms.
C)have significant network externalities.
D)be in a government-regulated market.

Question

Quizplus · Accepted Answer

A natural monopoly exists when a single firm can supply the entire market at a lower cost than multiple firms, due to economies of scale. As the firm grows larger, average costs decrease, allowing the firm to offer lower prices and outcompete any potential rivals. This is often seen in industries that require large upfront investments, such as utilities or transportation. Control of a key resource input or significant network externalities may contribute to a firm's dominance in a particular market, but it is not necessarily a requirement for a natural monopoly. Government regulation may be present in a natural monopoly market, but it is not a defining characteristic.

To Be a Natural Monopoly, a Firm Must