State True or False and justify your answer:

A monopoly is most likely to emerge and be sustained when firms have U-shaped long-run average total cost curves.

Long-run average aggregate (total) cost curves show how the average rate of a unit of production changes over a long period. When the curve is U-shaped, it means that the average cost decreases and increases. At the start of production, the firm experiences an economy of scale because of the fixed production cost. Then after entering the market, the cost of production increases.

The above statement is false. This is because, in a monopoly market, there are many entry barriers, which may include cost; thus, having a decreasing cost reduces the barriers of entering the market. Also, the increasing cost after entering the market makes it hard for the monopolist to control the market since they cannot make a profit by decreasing the cost to prevent other sellers from entering the market. Thus, the above statement is false.