Over all levels of output, if a firm's long-run average cost curve declines as output increases, then
A) small firms and large firms will have identical average costs.
B) there should be a large number of firms in the industry.
C) small firms would have lower average costs of production than large firms.
D) there should be only one firm in the industry.

Question

Quizplus · Accepted Answer

When a firm's long-run average cost curve declines as output increases, it indicates economies of scale. This means that as the firm produces more, the average cost of production decreases. In such a scenario, a single large firm can produce at a lower cost than multiple smaller firms, leading to a natural monopoly situation. Hence, there should ideally be only one firm in the industry to minimize costs and achieve efficiency.

Over All Levels of Output, If a Firm's Long-Run Average