Briefly explain how economies of scale are present in a natural monopoly.
What will be an ideal response?
The situation in which one large firm can provide the output of the market at a lower cost than two or more smaller firms is called a natural monopoly. With a natural monopoly, it is more efficient to have one firm produce the good. The reason for the cost advantage is economies of scale; that is, ATC falls as output expands throughout the relevant output range.
You might also like to view...
You are a lobbyist hired by a less developed country to try to prevent a developed country from increasing trade barriers against labor-intensive manufactured imports such as textiles
Make your case, arguing from both developed and developing country perspectives, in terms of who gains and who loses.
International capital flows tend to reduce the impact of fiscal policy
a. True b. False Indicate whether the statement is true or false
Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal
a. True b. False Indicate whether the statement is true or false
Tony Lai deposits $200 in currency in his checking account at a bank. This deposit is treated as:
A. a subtraction of $200 from the money supply because the $200 in currency is no longer in circulation. B. no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits. C. an addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200. D. an addition of $200 to the money supply because of the creation of a checkable deposit of $200.