When the average cost curve declines after intersecting the demand curve for a natural monopoly,which of the following must necessarily be true?
A)The marginal cost curve lies below the average cost curve at the point of intersection.
B)Marginal cost is also declining after the point of intersection.
C)The average cost curve and the marginal cost curve are parallel after the point of intersection.
D)The price is equal to marginal cost

Question

Quizplus · Accepted Answer

When the average cost curve declines after intersecting the demand curve for a natural monopoly, it means that the firm is experiencing economies of scale as it produces more output. This implies that the marginal cost is decreasing as well. Therefore, at the point of intersection, the marginal cost curve lies below the average cost curve.

When the Average Cost Curve Declines After Intersecting the Demand