Which of the following best describes products in a natural monopoly market?

• A. They are produced most efficiently by a single firm due to high fixed costs and economies of scale.
• B. They are characterized by perfect competition and identical products.
• C. They are produced by many firms with low barriers to entry.
• D. They are typically differentiated and sold in monopolistic competition.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a natural monopoly: it occurs when a single firm can supply the entire market demand at a lower cost than multiple firms due to high fixed costs and significant economies of scale.
2. Recognize that in a natural monopoly, the cost structure means that average costs decline over the relevant range of output, making it inefficient for multiple firms to operate.
3. Compare this with other market structures: perfect competition involves many firms with identical products and low barriers to entry, which is not the case here.
4. Monopolistic competition features many firms selling differentiated products, which contrasts with the single-firm dominance in a natural monopoly.
5. Conclude that the best description of products in a natural monopoly market is that they are produced most efficiently by a single firm due to high fixed costs and economies of scale.