CFA Practice Question
Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?
A. when substantial economies of scale are present
B. when the monopolist is a profit maximizer rather than a revenue maximizer
C. when the monopolist operates on the inelastic portion of the demand curve
Explanation: When significant economies of scale are present (usually due to the presence of enormous fixed costs) it is more efficient for one firm to produce the entire industry's output because it can do so at a lower average cost than many small rival firms.
User Contributed Comments 1
| User | Comment |
|---|---|
| BarryApartment | Good example: Natural Monopolies - Gas or Electric company |