For a natural monopoly, long-run average costs

Question

Quizplus · Accepted Answer

For a natural monopoly, long-run average costs (LRAC) fall as output increases. This is because a natural monopoly has high fixed costs and low marginal costs. As output increases, the fixed costs can be spread over a larger output, leading to a decrease in LRAC. Therefore, a natural monopoly can produce and supply output at a lower cost to consumers than several small firms producing for the same market.

For a Natural Monopoly, Long-Run Average Costs