CFA Practice Question
A natural monopoly occurs when the ______
A. entry of a second firm would make both firms unprofitable.
B. entry of a second firm would make both firms more profitable.
C. exit of the first firm would make the second firm unprofitable.
User Contributed Comments 1
| User | Comment |
|---|---|
| kocas | natural monopoly occurs only when one firm is enough to cover all the demand and two firms entering the business would make both of them unprofitable. It is "natural" because a second firm would never get into that market because it would be unprofitable for it. The market needs only one firm to stay profitable. Single firm does not get out, no more firms enter, therefore, natural monopoly. |