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Sagot :
A natural monopoly, such as a local telephone company, is characterized by economies of scale.
Economies of scale refers to the cost advantages which are experienced by companies as they grow and become more efficient.
An economy of scale is realized when any company increases in size and is able to spread out the cost of production over a larger number of units of a good.
Companies use economies of scale to maximize the efficiency of their production and the profits are maximized.
As the company produces more units of a good, the cost per unit goes down because operating and overhead costs get spread out over more units of the products which leads to the increased margins.
This is one reasons why a smaller company will charge more for a product than a larger company making the same product.
To know more about economies of scale here:
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