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To: Tenchusatsu who wrote (219894)	12/10/2006 10:19:18 AM
From: economaniack	Read Replies (1) \| Respond to of 275872

Tench, the definition of economies of scale is that average cost is declining, the result of declining average costs is that one firm doubling its output produces a certain quantity at lower cost than two firms dividing the same quantity between them. These are identical definitions. In this case "social cost" is simply the total of all costs associated with the production, however they are incurred. In the case of a single firm producing without externalities (whole other discussion) social costs are usually just the firm costs. In the case of two or more firms, the "social costs" would add their costs together, plus add any public subsidies etc. "natural" monopoly means it arises naturally from the industry cost structure, rather than depending on government intervention by say issuing patents, or selling an exclusive license to engage in and activity. Hence Microsoft is a natural monopoly because they need only pay the enormous costs of developing and debugging the software once, while if another firm offers similar products those costs which are most of the cost of the product at any level of output, are doubled. e