![]() Examples are usually the cases of telecommunications and utilities industry, where the costs to set up the infrastructure are restrictively high. In economics natural monopoly is described as a situation in which, for structural reasons, only one firm finds it profitable to produce in the market. Hence, natural monopoly might incur lower cost and charge lower prices to consumers in such industries. Consumers as a class are probably less affluent than stockholders and a monopoly profit performs no obvious incentive function (our definition of cost included. The average cost is much lower since it is spread over large range of output. An example is the tap water system in a city. The natural monopoly is able to reap EOS as compared to PC and Oligopoly. A natural monopoly is where a single firm is more efficient and cost effective than competing firms could be. So there is significant EOS and having a monopoly is more beneficial. A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors. Hargraves definition of monopoly is echoed in United States v. Similarly, Perloff 7 defined a natural monopoly as a firm which can produce the total output of the market at lower cost than several firms could. With reference to diagram; such industry usually have very high average costs, like water or transport companies. Similarly, a comparison of intellectual property law and natural monopoly regulation. So its better to have one firm in this market rather than multiple firms (like in an oligopoly or PC) ![]() Natural monopolies were recognized as potential. That said, the average cost for such a firm is downward sloping over a large range of output, suggesting that as more output is produced, the cost per unit decreases. examples include public utilities such as water services, electricity, telecommunications, mail, etc. We say that the minimum efficient scale occurs at a high level of output. This means that such industries have significant amount of economies of scale and by nature, would be more beneficial if only 1 firm existed and is able to spread the huge costs over a large range of output it produces. A) Explain what is meant by a natural monopoly (10)Ī natural monopoly is a type of monopoly characterised by non artificial barriers to entry, usually in the form of high overhead costs (such capital costs or equipment costs).
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