A natural monopoly arises because [….].

Question

A natural monopoly arises because [….].

 some firms are able to innovate

 some firms practice predatory pricing

 some goods are extremely expensive to produce

 some goods are extremely cheap to produce

Answer 1

A natural monopoly occurs when a single firm has a cost advantage and therefore can produce at a lower average cost than its competitors. Usually, this is caused by large start-up costs that act as barriers to entry for new firms that would rather not pay those initial costs to enter the market.

The answer to this specific question is likely that some products are expensive to produce. This high cost of production allows firms who already exist in the market to take advantage of their cost advantage and therefore might be able to hold a natural monopoly.