A natural monopoly can be made more efficient through [....].

Question

 market intervention

 firm exit

 firm entry

 none of the above

Answer 1

None of these answers cause a natural monopoly. Natural monopolies occur when a single producer can produce at a lower average total cost than its competition. This lower ATC keeps out competitors who know the existing firm can lower their prices and sell at a price lower than the competition and lower the profits of the new firms. New firms understand this and usually stay out of markets where an existing firm can produce at a lower average total cost.