If a firm is a natural monopoly, its
A)long-run average cost declines over the full range of market demand
B)long-run average cost increases over the full range of market demand
C)fixed cost declines over the full range of market demand
D)fixed cost increases over the full range of market demand
E)long-run average cost declines and marginal cost rises over the full range of market demand

Question

Quizplus · Accepted Answer

A natural monopoly occurs when the firm experiences economies of scale over a wide range of output levels. This means that as the firm increases production, its average cost of production decreases. Therefore, in the long run, the firm's long-run average cost declines over the full range of market demand.

If a Firm Is a Natural Monopoly, Its