<P> If, however, the firm is not a perfect competitor in the input markets, then the above conclusions are modified . For example, if there are increasing returns to scale in some range of output levels, but the firm is so big in one or more input markets that increasing its purchases of an input drives up the input's per - unit cost, then the firm could have diseconomies of scale in that range of output levels . Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range . </P> <P> In some industries, the LRAC is always declining (economies of scale exist indefinitely). This means that the largest firm tends to have a cost advantage, and the industry tends naturally to become a monopoly, and hence is called a natural monopoly . Natural monopolies tend to exist in industries with high capital costs in relation to variable costs, such as water supply and electricity supply . </P> <P> Long run average cost is the unit cost of producing a certain output when all inputs are variable . The behavioral assumption is that the firm will choose that combination of inputs that will produce the desired quantity at the lowest possible cost . </P> <P> When average cost is declining as output increases, marginal cost is less than average cost . When average cost is rising, marginal cost is greater than average cost . When average cost is neither rising nor falling (at a minimum or maximum), marginal cost equals average cost . </P>

Where do average total cost and marginal cost intersect