An electricity distribution firm operates in a municipality where substantial initial infrastructural investment causes its long-run average cost to continuously decline over the entire range of market demand. Which of the following best explains the fundamental source of this firm's monopoly power?
- Substantial economies of scale that render single-firm production more cost-effective than multi-firm competition, establishing a natural monopolyCevap
- BExclusive statutory patent rights granted by the state government preventing rival firms from distributing electrical energy
- CComplete ownership and cartellized control over all strategic raw materials required for power generation
- DA perfectly price elastic demand curve that allows the firm to set price above marginal revenue without losing buyers
Cevap
Substantial economies of scale that render single-firm production more cost-effective than multi-firm competition, establishing a natural monopoly.
The correct answer accurately points out that when long-run average cost declines over the entire extent of market demand, significant economies of scale enable a single firm to produce at a lower cost per unit than multiple firms, giving rise to a natural monopoly.
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Anahtar Kavram
Natural Monopoly and Economies of Scale