question archive Which of the following describes a situation in which a firm maintains a monopoly as a result of economies of scale not allowing competitors to operate with costs as low as the monopolist? A
Which of the following describes a situation in which a firm maintains a monopoly as a result of economies of scale not allowing competitors to operate with costs as low as the monopolist? A
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Which of the following describes a situation in which a firm maintains a monopoly as a result of economies of scale not allowing competitors to operate with costs as low as the monopolist?
A. Diseconomies of scale
B. Minimum efficient scale
C. Natural monopoly
D. Legal monopoly
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The correct answer is C. Natural monopoly.
A natural monopoly is formed due to economies of scale. The firm finds its cost decreasing to such an extent as it increases production that it makes it impossible for any other firm to enter the market. Such high economies of scale mean that it is sometimes better to let the natural monopoly exist.
