Monopolies enable cost efficiencies for consumers

Steps:

• Recall that competitive markets have many firms with high costs due to limited scale.
• In a monopoly, one firm dominates, allowing larger production volumes.
• Larger scale leads to economies of scale, reducing average costs.
• Lower costs can translate to reduced prices for consumers.

Why B is correct:

• Economies of scale occur when average total cost falls as output rises (ATC = TC/Q), enabling monopolies to lower prices below competitive levels.

Why the others are wrong:

• A: Monopolies reduce firm variety, limiting consumer choice.
• C: Monopolies produce less output to raise prices, per MR = MC rule.
• D: Monopolies set prices above marginal cost, not by free market forces.

Final answer: B