Which statements are true regarding economies of scale.
Which statements are true regarding economies of scale.
A. To maximize profits, a monopoly that occurs because of economies of scale should produce an output so that marginal revenue equals marginal costs.
B. Economies of scale typically cause an industry to be perfectly competitive.
C. When a firm has a natural monopoly it has that type of monopoly because of economies of scale.
D. A firm that has economies of scale sees its average total costs decrease when production increases.
Homework Answers
Option A, C, D are correct.
- Economies of scale usually occurs when the firms average total cost decreases when it increases the units of production as the cost gets equally distributed on these produced units.
- A natural monopoly is usually formed due to the presence of economies of scale and the firm operating as a natural monopoly derives all the benefits from the market as a sole producer.
- In order to maximize profits, monopoly firm will produce a quantity of output where the Marginal cost equals marginal revenue.
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