A natural monopoly's economies of scale refers to one firm's ability to achieve the lowest long-run average total cost, also known as

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BlackTom AI · Accepted Answer

To analyze the question, we first restate what is being asked: A natural monopoly's economies of scale refers to one firm's ability to achieve the lowest long-run average total cost, also known as

Option 1: 'the maximum efficient scale at a high level of output.' This is inconsistent with the standard concept. Economies of scale in a natural monopoly imply lowering average costs over a large range of output, not maximizing an upper limit of efficiency. The term 'maximum efficient scale' is not commonly used in this context, and it misstates the dynamic: efficiency grows as output increases, not at a maximum finite level.

Option 2: 'the minimum efficient scale at a high level of output.' This mirrors the classic definition of natural monopoly economies of scale. A natural monopoly arises when long-run average total cost declines over a very large range of output, so the minimum efficient scale occurs at a high level of output where the firm achieves the lowest possible average cost for that range of production. This aligns with the key idea that the cost structure favors one large provider.

Option 3: 'the maximum efficient scale at a low level of output.' This contradicts the concept. If efficiency were maximized at a low level of output, it would not reflect the long-run average total cost declining with scale that characterizes natural monopolies. The structure of natural monopolies is defined by large-scale efficiency, not small-scale peaks.

Option 4: 'the minimum efficient scale at a low level of output.' This also runs opposite to the natural monopoly idea. A low level of output would typically not exploit the economies of scale needed to reduce average costs; the minimum efficient scale at such a small output would not capture the sustained, decreasing ATC characteristic of a natural monopoly.

Putting the statements together, the correct framing of economies of scale for a natural monopoly is tied to the minimum efficient scale occurring at a high output level, reflecting that the firm achieves the lowest long-run average total cost over a wide range of substantial production. The other options either misstate the relationship between scale and cost, or place the efficient scale at inappropriate output levels, which would not capture the defining cost advantages of a natural monopoly.

A natural monopoly's economies of scale refers to one firm's ability to achieve the lowest long-run average total cost, also known as

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