​A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.Group of answer choicesTrueFalse

Answer: True

A natural monopoly occurs when a single firm can supply a product or service to an entire market at a lower per-unit cost than multiple competing firms. This characteristic typically arises in industries where the initial capital costs are very high or where there are significant economies of scale.

For example, utilities such as water, gas, and electricity often create natural monopolies because the infrastructure costs are substantial, and having multiple companies build duplicate systems would be inefficient and costly. In such cases, it is more logical for a single firm to operate since they can spread these fixed costs over a larger output, thereby reducing the cost per unit.

Thus, the statement is true: a natural monopoly does exist when one large firm can produce a product at a lower per unit cost than can smaller firms, making competition impractical or inefficient.