Figure 15-1

-Refer to Figure 15-1.Which of the following statements about the firm depicted in the diagram is true?
A)The fact that this firm is a natural monopoly is shown by the long-run average total cost curve still falling when it crosses the demand curve.
B)The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output rises.
C)The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output rises.
D)The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average total cost where the firm maximizes its profits.

Question

Figure 15-1
 
-Refer to Figure 15-1.Which of the following statements about the firm depicted in the diagram is true?
A)The fact that this firm is a natural monopoly is shown by the long-run average total cost curve still falling when it crosses the demand curve. 
B)The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output rises. 
C)The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output rises. 
D)The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average total cost where the firm maximizes its profits.

Quizplus · Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than two or more firms. This can be seen in the diagram by the long-run average total cost (LRATC) curve still falling when it intersects with the demand curve, indicating that the firm is taking advantage of economies of scale. If there were room in the market for more firms, the LRATC curve would not be able to reach the same low level, making it less efficient to produce the market output with multiple firms. Therefore, the fact that the LRATC curve is still falling suggests that this is a natural monopoly. The other answer choices do not accurately describe characteristics of a natural monopoly.

Figure 15-1 -Refer to Figure 15-1.Which of the Following Statements About the Following