When economies of scale exist so that one firm can meet the entire market demand at a lower average total cost than two or more firms,
A) a natural monopoly develops.
B) the monopoly encounters competition.
C) economic profit is reduced to zero.
D) the monopoly converts all of the consumer surplus into economic profit.
E) there is always the opportunity to price discriminate.

Question

Quizplus · Accepted Answer

When economies of scale exist, it means that as the scale of production increases, the average total cost of production decreases. This implies that if one firm produces a good or service, it can supply the entire market at a lower cost than if two or more firms compete. As a result, a natural monopoly develops where the single firm has a monopoly over the market as it is more efficient than multiple firms producing the same product.

When Economies of Scale Exist So That One Firm Can