Question

uppose that Rowan, Inc. builds a high-speed, magnetically powered transportation system from New York to Los Angeles, which is the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. This monopoly would result from:

Answer 1

Answer: b. increasing returns to scale.

Explanation:

With the high capital costs having enabled decreasing average costs for any conceivable level of demand, the company would be making an increasing returns to scale which means that it would be making more return per capital spent.

This will create a natural monopoly because the company will be more efficient in this particular industry and if another company tried to come in, they would have to spend a lot of money to get to a point of increasing returns to scale.