Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.

Question

Quizplus · Accepted Answer

The monopoly results from increasing returns to scale, as the high fixed costs and large capital investment lead to decreasing average costs as output increases, making it difficult for competitors to enter the market.

Suppose That You Build a High-Speed, Magnetically Powered Transportation System