... that gains significantly from scale economies as it has a falling long run average cost (LRAC) curve over its entire output range. The main part of the rail network is the infrastructure (i.e. the track, stations and signalling equipment). It wouldn't be reasonable to have it run by more than one company; the reason for this is shown diagrammatically below: Price The LRAC curve is falling throughout the relevant levels of output until the cost continues to decline. This is due to the economies of scale it's enjoying, leading to greater efficiency. At price P1 and quantity Q1, the monopoly will produce and make profit, but will make a loss if it tries to be competitive producing at point B, where price is equal to the long run marginal cost (LRMC). As firms keep entering the industry, the average cost continues to rise, as each firm produces less at ...

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