Refer to the information provided in Figure 13.8 below to answer the question that follows. Figure 13.8
-Refer to Figure 13.8. The long-run average cost curve is for the only firm producing electricity, and the market demand for electricity from all buyers is 100,000 kilowatts per hour. Due to economies of scale
A) it makes economic sense for this firm to be the only producer of electricity.
B) many firms should be in this industry.
C) this firm should not be allowed to provide electricity.
D) the government should take over the electricity market.

Question

Refer to the information provided in Figure 13.8 below to answer the question that follows.  Figure 13.8
-Refer to Figure 13.8. The long-run average cost curve is for the only firm producing electricity, and the market demand for electricity from all buyers is 100,000 kilowatts per hour. Due to economies of scale
A) it makes economic sense for this firm to be the only producer of electricity. 
B) many firms should be in this industry. 
C) this firm should not be allowed to provide electricity. 
D) the government should take over the electricity market.

Quizplus · Accepted Answer

Economies of scale imply that as production increases, the average cost of producing each unit decreases. When a single firm can produce the entire market demand at a lower cost than multiple firms could, it makes economic sense for there to be only one producer, often referred to as a natural monopoly. This is why choice A is correct.

Refer to the Information Provided in Figure 13