A natural monopoly occurs when: A. economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. B. diseconomies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. C. the average variable cost curve is increasing. D. None of the above is true.

Question

Shaffer

Business

23 December, 13:05

A natural monopoly occurs when: A. economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. B. diseconomies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. C. the average variable cost curve is increasing. D. None of the above is true.

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Yang · Answer 1

Correct answer is (A). Natural monopoly occurs because of economies of scale.

Explanation: In case of monopoly, the average total cost (ATC) declines and gives monopolists the advantage over its competitors in the market. It is discrete type of monopoly where fixed cost are way too high which results in low entry and exit of new entrants and hence, natural monopoly. They comes with economies of scale, which means they create large relations to the size of market.