Which condition is most likely to create a natural monopoly?
Correct answer: A. Large economies of scale over the relevant market range
- A. Large economies of scale over the relevant market range
- B. Many firms producing identical products
- C. Perfect information among all buyers
- D. Free entry and exit for competing firms
Explanation
A natural monopoly arises when one firm can supply the market at a lower average cost than several smaller firms. This usually results from substantial economies of scale and high fixed infrastructure costs.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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