If a firm has a downward-sloping long-run average cost curve, then
A) it is experiencing decreasing returns to scale.
B) it is experiencing decreasing returns.
C) it is a natural monopoly.
D) marginal cost is greater than average cost.

Question

Quizplus · Accepted Answer

A downward-sloping long-run average cost curve indicates that as output increases, the average cost of production decreases. This is characteristic of a natural monopoly, where due to high fixed costs and economies of scale, a single firm can produce output at a lower cost than any competitor, making it more efficient for a single firm to serve the entire market.

If a Firm Has a Downward-Sloping Long-Run Average Cost Curve