A natural monopoly exists if:
A) several former competitors merge to become the only producer in the industry.
B) average cost of production is lowest when only one firm produces the entire industry output.
C) one firm controls the supply of an essential input used by the industry.
D) a firm has a patent or copyright.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when the average cost of production is lowest when only one firm produces the entire industry output. This can be due to economies of scale where the fixed costs are so high that it is not feasible for multiple firms to operate and compete effectively. Therefore, one firm can provide the output at a lower cost than multiple firms producing the same output.

A Natural Monopoly Exists If