If the economies of scale are large enough, average cost for a natural monopoly can be:
A) higher than the average cost under competition.
B) lower than the average cost under competition.
C) higher than the price of the natural monopoly.
D) higher than the price under competition.

Question

Quizplus · Accepted Answer

A natural monopoly can achieve economies of scale because of its large size and fixed costs, which means that the cost per unit decreases with an increase in production. This allows the natural monopoly to produce goods and services at a lower average cost compared to smaller firms under competition. Therefore, the average cost for a natural monopoly can be lower than the average cost under competition.

If the Economies of Scale Are Large Enough, Average Cost