If there are strong economies of scale and scope, then society
A)can benefit from regulation of a natural monopoly.
B)can gain when more firms enter the market.
C)can gain when regulators place a price floor on the market.
D)should promote the expansion of federally run markets.

Question

Quizplus · Accepted Answer

Strong economies of scale and scope imply that one firm can produce at lower costs than multiple firms. This creates a natural monopoly, where it is most efficient for only one firm to produce the output. However, this monopoly power can lead to higher prices and reduced output, which harms society. Thus, regulation can help ensure that the natural monopolist does not abuse its market power and that society benefits from the lower costs of production.

If There Are Strong Economies of Scale and Scope, Then