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A monopoly has a lot of power over an industry and one of the ways it...

  1. A monopoly has a lot of power over an industry and one of the ways it controls power is their average total cost curve may fall through such a large range of output that smaller firms cannot compete and in fact this could be the case where a single firm is able to supply a product over such a wide range of output to basically satisfy total market demand and not experience rising average costs.
  1. What kind of barrier to entry are large average total costs and why?

  1. How is it specifically that a monopolist is able to enjoy falling average total costs for such a long time?  

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Answer #1

A. It is natural monopoly, a type of monopoly that exists due to strong economies of scale over long-range of output. The major barrier to entry is natural barriers to entry as a firm needs the high start-up costs for conducting such a business in a specific industry. So it needs to make initially large average total costs.

B.  it may be often due to specific raw material requirement, technology requirement that makes natural barriers to enter the new firm. Patent over a product is a general example that requires huge initial cost so it makes that firm to achieve economies of scale over long time. if a firm develops an efficient production process that is unique enable it to enjoy falling average total costs. Hence technological advantage or huge initial cost like in rail transport enable a firm to to enjoy falling average total costs.

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