Comment on the following statement: "In order for a natural monopoly to be present, economies of scale must be realized at a scale that is close to total demand in the market."
What will be an ideal response?
The statement is true. If economies of scale are exhausted at an output level of 500,000 units, having only one firm producer in the market is efficient as long as total demand is 500,000 units. If total demand was 5 million units, the market would be better served by ten firms rather than one.
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Moral hazard is the term used to describe the situation in which:
a. a consumer may buy a low-quality product. b. consumers receive a lower price because of a mistake on the part of the clerk. c. a consumer is being compensated for a defective product. d. people may change their behavior after they have signed a contract or agreed to a specified behavior. e. people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so.
Which of the following statements about mutual funds is correct?
a. A mutual fund is not a financial intermediary. b. A disadvantage of buying mutual funds is a lack of diversification c. People who buy shares from a mutual fund are guaranteed a minimum return. d. On average index funds outperform managed funds.