question archive Because a natural monopoly has declining average total cost, marginal cost is less than average total cost
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Because a natural monopoly has declining average total cost, marginal cost is less than average total cost. But why? Explain.
The only way for average total cost (ATC) to continue to decline is for marginal cost (MC) to be lower than ATC. This happens because the only way to lower the average of anything is to add something of lower value. For example, the only way to lower the average height of people in a room is to add someone shorter than the average to a room. If MC wasn't lower than ATC, then ATC would not be falling and thus there wouldn't be an economy of scale and there would be no natural monopoly.