Which scenario best describes a situation where internal economies of scale cause the average cost curve to continuously decline, making it inefficient for more than one firm to operate in the market?

Show Answers

A natural monopolyA restriction limiting an LDC to a single firm in the industryA single firm encountering a perfectly elastic (horizontal) demand curve in LDCsThe presence of an oligopolistic market structure

Explanation

When internal economies of scale lead to a steadily decreasing average cost, it results in a natural monopoly where only one firm can efficiently supply the entire market. This condition discourages multiple firms from entering, as it would increase costs and reduce efficiency.