In a natural monopoly, long-run average total cost decreases as output increases.

Question

Quizplus · Accepted Answer

In a natural monopoly, economies of scale exist, leading to a decrease in long-run average total cost as output increases. This is because the fixed costs are spread out over a larger output, leading to a lower cost per unit. Therefore, the natural monopoly has a cost advantage over potential competitors, making it difficult for new firms to enter the market.

In a Natural Monopoly, Long-Run Average Total Cost Decreases as Output