When a firm experiences continually declining average total costs, the firm is a
A)government-created monopoly.
B)price taker.
C)natural monopoly.
D)revenue maximizer.

Question

Quizplus · Accepted Answer

Continually declining average total costs indicate that the firm is a natural monopoly. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than any potential competitor due to economies of scale. As the firm produces more, its average costs decrease due to spreading fixed costs over a larger output, and its marginal cost becomes lower than the average cost. This allows the firm to lower its price and increase its market share while still earning a profit.

When a Firm Experiences Continually Declining Average Total Costs, the Firm