Suppose that you build a high-speed,magnetically powered transportation system from Toronto to Vancouver,and you are the only firm providing this service.High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand.Your monopoly is the result of your:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) use of government-set barriers.

Question

Quizplus · Accepted Answer

The decreasing average cost for any conceivable level of demand is due to increasing returns to scale, implying that the cost per unit of output decreases as the level of output increases. This is a characteristic of a natural monopoly that is driven by economies of scale. Therefore, the monopoly is a result of increasing returns to scale. The other options, such as control of a scarce resource or input, technological superiority, or use of government-set barriers, do not adequately explain the reason for the monopoly.

Suppose That You Build a High-Speed,magnetically Powered Transportation System from Toronto