When an industry is a natural monopoly,Group of answer choicesa larger number of firms will lead to a higher average total cost.it is characterized by constant returns to scale.it is characterized by diseconomies of scale.a larger number of firms may lead to a lower average total cost.
Question
When an industry is a natural monopoly,Group of answer choicesa larger number of firms will lead to a higher average total cost.it is characterized by constant returns to scale.it is characterized by diseconomies of scale.a larger number of firms may lead to a lower average total cost.
Solution
When an industry is a natural monopoly, it is characterized by economies of scale. This means that as the quantity of output increases, the average total cost decreases. Therefore, a larger number of firms will lead to a higher average total cost. This is because each firm will be producing less than the quantity that minimizes average total cost.
In other words, a natural monopoly occurs when a single firm can supply a good or service to an entire market at a lower cost than could two or more firms. This typically happens in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples include public utilities such as water services and electricity.
So, the correct answer is "a larger number of firms will lead to a higher average total cost."
Similar Questions
When a decrease in the scale of production leads to higher average costs, the industry exhibitsGroup of answer choicesdiminishing returns.increasing returns to scale.decreasing returns to scale.constant returns to scale.
Multiple Choice QuestionWhat term is used to describe declining average total costs with added firm size?Multiple choice question.Economies of scaleBarriers to entryPure monopolyDiseconomies of scale
A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.Group of answer choicesTrueFalse
When a firm's average total cost curve continually declines, the firm is aGroup of answer choicesgovernment-created monopoly.natural monopoly.revenue monopoly.All of the above are correct.
On the downward sloping portion of a firm's long run average cost curve, it is experiencingGroup of answer choiceseconomies of scale.constant returns to scale.diseconomies of scale.diminishing marginal returns.
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