For a natural monopoly, economies of scale
A) are totally absent.
B) lead to a legal barrier to entry.
C) and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.
D) exist along the long-run average cost curve at least until it crosses the market demand curve.
E) as well as constant returns to scale and diseconomies of scale exist along the long-run average cost curve at least until it crosses the market demand curve.

Question

Quizplus · Accepted Answer

Economies of scale exist along the long-run average cost curve for a natural monopoly until it crosses the market demand curve. This means that as production increases, the average cost of production decreases. However, once the monopoly has achieved a certain level of production, the economies of scale diminish and diseconomies of scale may start to appear. This is because the costs of production start to increase as the company becomes too large to efficiently manage or operate. Therefore, natural monopolies often have a limited range of output levels over which they can operate efficiently.

For a Natural Monopoly, Economies of Scale