If large fixed costs result in ATC falling as output increases and this occurs over the relevant range of output,this industry is a:
A)constant-cost industry.
B)natural monopoly.
C)network externality.
D)profit maximizer.

Question

Quizplus · Accepted Answer

In a natural monopoly, the firm has significant fixed costs such as infrastructure or setup costs, which results in a falling average total cost (ATC) over the relevant range of output. This is because as the output increases, the fixed costs get spread over a larger output, resulting in a decrease in the average cost per unit. This is in contrast to constant-cost industries where the minimum efficient scale and costs remain constant irrespective of the output level. Network externality and profit maximization are not related to the given scenario.

If Large Fixed Costs Result in ATC Falling as Output