A case when internal economies of scale bring about a continuously falling average cost curve that makes having more than one firm in an industry inefficient is illustrative of ?
Correct answer: A. a natural monopoly
- A. a natural monopoly
- B. an LDC's limit of one firm to an industry
- C. an individual firm facing a horizontal (perfectly elastic) demand curve in LDCs
- D. The existence of oligopoly
Explanation
A natural monopoly occurs when economies of scale make average cost fall over the relevant market range, so one large firm can supply the market more efficiently than several firms. The other choices do not describe this cost structure.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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