alleryStart learning →A natural monopoly can arise when economies of scale combine with:
AThe age of the firm
BThe colour of the goods
CThe season of the year
DThe size of the market
Answer & Solution
Correct answer: D. The size of the market
1. Falling average cost with scale is only decisive relative to how big the market is.
2. Economies of scale can combine with the size of the market to limit competition.
3. If one firm at full scale can serve the whole market cheaply, a second firm cannot match it.
4. That is the situation described as a natural monopoly.
_Source: OpenStax Principles of Microeconomics for AP(R) Courses 2e (CC BY 4.0), Ch 9 'Monopoly', sections 9.1-9.2_
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