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In: Economics

Excluding the case when the government decides to create a legally-enforced monopoly, which answer below describes...

Excluding the case when the government decides to create a legally-enforced monopoly, which answer below describes the condition under which a monopoly is likely to emerge through the growth of a single firm outcompeting its smaller rivals?
a. When the market demand curve intersects with a downward sloping region of a single firm’s average total cost curve.
b. When the market demand curve intersects with an upward sloping region of a single firm’s average total cost curve.
c. When a single firm’s marginal revenue curve intersects with that firm’s marginal cost curve.
d. When a single firm’s marginal revenue curve intersects with that firm’s average cost curve.

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Expert Solution

Ans.- (A)

Its the case of natural monopoly. For a natural monopoly the long-run average cost curve (LRAC) falls continuously over a large range of output. As a result, there is room in the market for only one firm to fully exploit the economies of scale that are available and therefore achieve productive efficiency.

Since ATC falls over a large range of output so Market demand curve intersects ATC when it's declining

Rahul Sunny answered 2 years ago
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