Which of the following is a characteristic of a firm that is a natural monopoly?
A) The firm's average costs decline over all levels of output.
B) The firm's elasticity of supply is very low.
C) The firm does not incur any sunk costs.
D) The firm faces a horizontal demand curve.
E) The firm makes zero economic profit.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when a firm's average costs decline over all levels of output, giving the firm a cost advantage over potential competitors. This is typically due to high fixed costs, such as those involved in constructing and maintaining infrastructure. As a result, it is not efficient to have multiple firms producing the same good or service in the market, as the cost of duplicating the infrastructure would increase overall costs and result in higher prices for consumers.

Which of the Following Is a Characteristic of a Firm