Producers of artificially scarce goods face similar as natural monopolists; they decline over the relevant range of output.

Question

Quizplus · Accepted Answer

Artificially scarce goods are produced by limiting the quantity available in the market, which involves fixed costs such as setting up production facilities, creating a brand, and marketing. This creates a situation where the producer enjoys economies of scale, thereby reducing the average cost of production. However, in the relevant range of output, the fixed cost becomes a dominant factor, leading to increasing average total costs. Therefore, producers of artificially scarce goods face similar challenges as natural monopolists, where the marginal cost intersects with the average total cost at a declining point.

Producers of Artificially Scarce Goods Face Similar as Natural Monopolists;