Question

Which statements are true regarding economies of scale?Choose one or more:A.When a firm has a natural monopoly, it has that type of monopoly because of economies of scale.B.To maximize profits, a monopoly that occurs because of economies of scale should produce an output so that marginal revenue equals marginal costs.C.Economies of scale typically cause an industry to be perfectly competitive.D.A firm that has economies of scale sees its average total costs decrease when production increases.

Answer 1

Answer:

The answers in this case would be options A. B. and D.

Explanation:

• In Microeconomics or Production Economics,economies of scale refers to a phenomenon under which any firm or company is able to reduce or control its per unit cost of production or the average cost of production and increase the overall production or output level simultaneously.
• Natural monopolies can arise due to consistent economies of scale.As any firm or company is able to consistently reduce or control its average cost of production as the production or output level expands,it can obtain a significant competitive or cost advantage in the market over its market counterparts or rivals.Hence,successful and consistent exploitation of economies of scale can eventually give rise to natural monopolies.
• Any monopoly firm or company produces the output level at which the marginal revenue or the additional or incremental revenue obtained from selling one more unit of the output is equal to the additional or incremental cost incurred to produce that 1 more unit of output or the marginal cost.This output level is the profit maximizing output of any monopoly.Therefore,natural monopolies also produce the output level and charge per unit output price which correspond to the equality between marginal revenue and marginal cost of production.