If an industry realizes significant economies of scale relative to the size of the market, it is most efficient for there to be a single firm in the industry.

Question

Quizplus · Accepted Answer

When an industry experiences significant economies of scale relative to the market size, it means that the cost per unit of production decreases as the volume of production increases. In such cases, a single firm can produce the total output demanded in the market at a lower cost per unit than if there were multiple firms. This leads to a natural monopoly situation, where it is most efficient for one firm to supply the entire market.

If an Industry Realizes Significant Economies of Scale Relative to the Size