Economies of Scale from High Fixed Costs

Steps:

• Identify industry characteristics: Energy supply requires massive infrastructure like power plants and grids, leading to high upfront investments.
• Analyze market structure: High fixed costs create barriers to entry, favoring firms that spread costs over large outputs.
• Evaluate options: Match traits to dominance by large firms, ruling out those implying competition or low barriers.
• Confirm: Large firms achieve economies of scale, dominating due to cost advantages.

Why B is correct:

• High fixed capital costs, per economies of scale theory, mean average costs fall with output volume, allowing large firms to outcompete smaller ones and form natural monopolies.

Why the others are wrong:

• A: Government controls regulate but do not cause large firm dominance; they respond to it.
• C: Energy uses capital-intensive methods, not labor-intensive, which would favor smaller firms.
• D: Non-price advertising boosts rivalry, increasing smaller firm entry, not large firm control.

Final answer: B