When there are economies of scale over the relevant range of output for a monopoly, the monopoly
A)is a natural monopoly.
B)is a government-granted monopoly.
C)has monopoly power due to the ownership of a patent or copyright.
D)has monopoly power due to the ownership of a key production resource.

Question

Quizplus · Accepted Answer

Economies of scale occur when the average cost of production decreases as the level of output increases. A natural monopoly exists when there are economies of scale over the entire range of output that could be produced in a market, making it more efficient to have only one firm produce the goods or services. Therefore, if a monopoly has economies of scale, it is a natural monopoly.

When There Are Economies of Scale Over the Relevant Range