In the case of a natural monopoly, as the number of firms in the industry increases, the average cost of producing a:
A) fixed number of units decreases.
B) fixed number of units stays the same.
C) variable number of units stays the same.
D) fixed number of units increases.

Question

Quizplus · Accepted Answer

In a natural monopoly, a single firm can supply the entire market at a lower cost than multiple firms due to economies of scale. As more firms enter, the average cost of producing a fixed number of units increases because the cost advantages of large-scale production are lost.

In the Case of a Natural Monopoly, as the Number