Question

A ______ is a situation where economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.

1) Monopoly
2) Oligopoly
3) Perfect competition
4) Monopolistic competition

Answer 1

A natural monopoly is a situation where one firm can supply the entire market at a lower average total cost than multiple firms. This occurs in industries with large economies of scale.

Step-by-step explanation:

A natural monopoly is a situation where economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms. This often occurs in industries where the marginal cost of adding an additional customer is very low once the fixed costs are in place. For example, a water company laying main pipes in a neighborhood will have low marginal costs to provide water service to additional homes. Similarly, an electric company installing electrical lines in a new subdivision will have minimal marginal costs to provide additional electrical service.