Question

A natural monopoly occurs when

a.There are economies of scale present in the industry

b. There is enough demand for more than one firm

c.The product is sold in a natural state

d. There are diseconomies of scale present in the industry

Answer 1

There are economies of scale present in the industry.

( Natural monopoly is a distinct type of monopoly. It exists when a single firm can serve the market at lower cost than combination of two or more firms.lt is possible when the single seller can provide the output because of its size. Economies of scale are very significant in this context since minimum efficient scale won't be reached untill the firm becomes very large in relation to the size of the market.Eg) railway

In simpler terms, natural monopoly occurs due to high start up costs or powerful economies of scale of conducting business in a industry.