Answer
A natural monopoly occurs when one firm, usually the one who owns resources or has been one of the first firms in a particular industry, has a significant cost advantage to produce goods compared to the other firms.
A big market, where costs of entry for businesses are high, gives a significant natural monopoly to a single firm who has been in business before others and can produce with a lower cost than new firms who may enter the business.
Work Step by Step
A natural monopoly occurs when one firm, usually the one who owns resources or has been one of the first firms in a particular industry, has a significant cost advantage to produce goods compared to the other firms. For this reason, the other firms don't enter in that business because the cost disadvantage they face makes it unfeasible to successfully compete the top firm.
A big market, where costs of entry for businesses are high, gives a significant natural monopoly to a single firm who has been in business before others and can produce with a lower cost than new firms who may enter the business. A good example of this would be the telecommunication industry, where the high costs prevent new entrants in the industry.
