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Chapter 9: Q 14 (page 232)

In what sense is a natural monopoly "natural"?

Short Answer

Expert verified

A monopoly is natural when the structure of the market makes it unreasonable to have multiple competing firms, this is the case for products that require large-scale infrastructure. Extremely high natural cost of entry.

Step by step solution

01

Step 1. Meaning of Natural Monopoly.

A natural monopoly implies that the controlling firm has engaged in zero exclusionary practices to discourage competition. The monopoly exists in a separate uncontrollable facet, such as natural limitations of land or astronomically high capital investment costs.
Examples of a natural monopoly are electricity and water, as competitors would have to establish their own country spanning system of pipes or wires.

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Most popular questions from this chapter

How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?

Is a monopolist a price taker? Explain briefly.

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How does the demand curve perceived by a monopolist compare with the market demand curve?

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10%less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
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