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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