A natural monopoly is created by A. a patent B. government regulation C. economies of scale D. control of scarce inputs?

D: if you're the only one with the resources to make a product, it's a natural monopoly

Add: Yes, a natural monopoly may be a result of exploiting economies of scale, thus undercutting competitors who have higher costs, but "control of scare inputs" can artificially drive up the entry costs for all competitors. For instance, if you have the only known source for an essential component, then the scale doesn't matter until the market can justify an expensive alternative source.

They're not regulation, in the sense of being general commands from the government that everyone engaged in some line of business has to obey. They're not "regulation of commerce" in the sense of being authorized by the commerce clause of the Constitution. As Brown95etc said, they're specifically authorized by their own clause along with patents and trademarks. They're compatible with capitalism, in that they allow market forces to work in the production of intangible capital. On the other hand, they're not compatible with textbook-perfect markets, with the kind of dogma that often goes under the name of capitalism. In real markets, things don't work perfectly. There's no incentive to do things that will benefit others in ways they don't pay you for (positive externalities). Innovation is the key to economic growth and prosperity, in the very long term. But its benefits are diffused throughout the economy, so a pure laissez-faire economy would do almost no innovation. Patents solve that problem, but they come with a problem of their own: like all monopolies, they cause a dead-weight loss. A dead-weight loss means that the price paid by consumers is higher than the cost of production, so it would be beneficial to produce more of the good and sell it at an intermediate price to the consumers willing to pay. The consumers would benefit, because the goods would be worth more to them than they paid. The producer would benefit, because the cost of production would be less than they were paid. Everyone else would be unaffected. It's win-win-neutral (what's called a Pareto improvement in the jargon). The problem with that option is that it's completely contrary to the way markets work: in a market there's a price, which enables everyone to know all they need to. If you depend on some authority knowing everything, whether it's a monopoly business or a government agency, it can fail much worse than markets usually do. Ideally, either a government subsidy or price discrimination could give optimal results. Practically, patents are worth including in the system along with having government do some research and subsidize other research.

C

C