Answered

Why can an industry that enjoys economies of scale easily become a natural monopoly?

A. Because average costs drop as production rises
B. Because the market taxes less as production rises
C. Because consumers tend to appreciate monopolies
D. Because our government traditionally supports monopolies

Please select the best answer from the choices provided:
OA
OB
OC
OD



Answer :

GinnyAnswer

Final answer:

A natural monopoly occurs when economies of scale lead to a single efficient producer dominating the market due to cost advantages. Industries like water and electricity distribution exemplify this concept.


Explanation:

Natural monopolies often arise in industries where economies of scale are significant. As output increases, the average total cost declines continuously, giving the monopolist a cost advantage over competitors. For example, in industries like water or electricity distribution, high fixed costs and low marginal costs make it more efficient for one producer to serve the entire market.


Learn more about Natural Monopoly and Economies of Scale here:

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