Suppose that you build a new jumbo jet that can carry five times more passengers than can any other competitor.You have high fixed costs due to the quantity of capital used to build the jets,and average cost is decreasing for all levels of demand.In this case,your monopoly would result from:
A)sunk costs.
B)location.
C)economies of scale.
D)government restrictions.

Question

Quizplus · Accepted Answer

The monopoly in this case is due to economies of scale. The high fixed costs required to build the jumbo jet create a significant barrier to entry for competitors. Since the average cost is decreasing as demand increases, the larger company can produce the planes more efficiently and at a lower cost per unit than any potential competitors. This creates a natural monopoly based on the company's ability to produce at a lower cost because of economies of scale.

Suppose That You Build a New Jumbo Jet That Can