Figure 9.1
-Refer to Figure 9.1.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 continually declining long-run average total cost as output rises.
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 maximises its profits.

Question

Figure 9.1 
-Refer to Figure 9.1.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 continually declining long-run average total cost as output rises. 
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 maximises its profits.

Quizplus · Accepted Answer

The continually declining long-run average total cost as output rises is a characteristic of a natural monopoly, as there are economies of scale that allow for the firm to achieve lower costs as they produce on a larger scale. This is not necessarily true for firms that are not natural monopolies, as they may experience diseconomies of scale or have a more U-shaped long-run average total cost curve. The other answer choices do not accurately reflect the characteristics of a natural monopoly.

Figure 9.1 -Refer to Figure 9.1.Which of the Following Statements About the Statements