Question

In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market.
Economies of Scale

Answer 1

The statement "low average total costs are obtained only through large-scale production" defines the Economics of Scale

Large scale production:

Large scale production means the production of a commodity on a large scale with a large sized firm and it requires huge investments in plant and machinery.

Given,

In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market.

Here we need to define the concept that used here.

In the given question, they state that the low average cost of the product is happen when the production is larger. In this stage the profit is low.

While we looking these definition, we have identify that it will explain the scale of the economy.

To know more about Large scale production here.

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