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Which of the following best characterizes a natural monopoly? a
Which of the following best characterizes a natural monopoly?
a. fixed costs are typically a small portion of total costs
b. average total cost declines over large regions of output
c. the product sold has an inelastic demand
d. production of the good shows constant costs
Expert Solution
The correct answer is B (average total cost declines over large regions of output). Natural monopoly refers to a monopoly that existing due to economies of scale and higher initial capital required. Moreover, they serve as the only suppliers of a commodity to a geographical location or an industry. Furthermore, lower marginal costs than average total cost, leads to a reduction in average total cost.
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