Which of the following is NOT true when there are large economies of scale such that one firm can produce at a lower average cost than can be achieved by multiple firms?
A) This situation produces a natural monopoly.
B) Proportional increases in output yield proportionally small increases in total cost.
C) The long-run average cost curve of the firm will increase at a low level of output.
D) There will only be one firm in this industry.

Question

Quizplus · Accepted Answer

When there are large economies of scale, the long-run average cost curve of the firm will decrease as output increases, causing a natural monopoly to emerge. Proportional increases in output yield proportionally small increases in total cost, making it feasible for one firm to produce at a lower average cost than multiple firms. Therefore, the correct statement is that the long-run average cost curve of the firm will decrease at a low level of output, not increase. Finally, since one firm can produce more efficiently than multiple firms, there will only be one firm in this industry.

Which of the Following Is NOT True When There Are