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 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 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 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 maximizes its profits.

Quizplus · Accepted Answer

The continually declining long-run average total cost as output rises is a characteristic of natural monopoly. As the firm produces greater amounts of output, the average total cost decreases due to economies of scale. Therefore, the fact that the long-run average total cost declines in the diagram indicates that this firm is a natural monopoly. The other options do not provide evidence of the firm being a natural monopoly.

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