The graph on the right shows the average total cost curve for a firm.
How would the cost differ if the market consisted of only one large firm compared to a market with many small firms?
1.) Using the point drawing tool, place a point at the output and average cost combination that would exist if there was one large monopoly producing 80 units. Label your point 'Monopoly.'
2.) Using the point drawing tool, place a point at the output and average cost combination that would exist if this was the ATC curve for one of many firms, where each firm produces 20 units. Label your point 'Competition.'
Carefully follow the instructions above and only draw the required objects.
Using the graph, a firm with that type of cost curve is best suited to be
A. a competitive firm, since it faces economies of scale, which gives it an advantage over small competitive firms.
B. a competitive firm, since it faces diseconomies of scale, which gives it an advantage over small competitive firms.
C. a natural monopoly, since it faces economies of scale and can produce at a lower cost if done by one firm.
D. a monopoly based on legal market power, since it faces diseconomies of scale and can produce at a lower cost if done by one firm.