A monopoly is most likely to emerge and be sustained when
A) output demand is relatively elastic.
B) firms have U-shaped average-total-cost curves.
C) fixed capital costs are small relative to total costs.
D) economies of scale are large relative to market demand.

Question

Quizplus · Accepted Answer

Economies of scale occur when the cost per unit of production drops as the company expands output. If economies of scale are large in relation to market demand, only a few firms can operate efficiently in the market, making it difficult for new firms to enter the market and challenging existing firms to compete. Therefore, a monopoly is likely to emerge and be maintained.

A Monopoly Is Most Likely to Emerge and Be Sustained