A sunk-cost monopoly is most likely to result if a single firm:
A) is the only seller in a small town or community.
B) is investor owned, but granted the exclusive right by the government to operate in a market.
C) experiences long-run increasing economies of scale over a wide range of output.
D) has made extensive investments in advertising to establish brand-name recognition among consumers.

Question

Quizplus · Accepted Answer

A sunk-cost monopoly arises when a firm has made significant investments, known as sunk costs, in equipment, advertising, or other assets that cannot be recovered if the firm exits the market. Option D suggests that a firm has made extensive investments in advertising to establish brand-name recognition among consumers, which is a classic example of sunk-cost investment. Therefore, option D is the best choice. Options A and B are incorrect because they do not describe the conditions necessary for a sunk-cost monopoly to arise. Option C is incorrect because long-run increasing economies of scale can lead to natural monopoly, but not necessarily a sunk-cost monopoly.

A Sunk-Cost Monopoly Is Most Likely to Result If a Single