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Chapter 9: Q.9 (page 232)

What is a natural monopoly?

Short Answer

Expert verified

A natural monopoly is a monopoly created because of high fixed cost or economies of scale.

Step by step solution

01

Step 1. Definition

Monopoly is a market structure in which there is only one seller producing a good that does not has any close substitutes.

02

Step 2. Explanation

Natural monopoly is a monopoly that is not by imposing artifical barriers but is created because of reasons such as naturally high fixed cost, economies of scale, resource scarcity.

Gulf countries have a natural monopoly overcrude oil because they have an abundance of oil but it is scarce in rest of the world.

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Most popular questions from this chapter

What is a legal monopoly?

Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into four firms of equal size, with the idea that eliminating the monopoly would promote competitive pricing of electricity. What do you anticipate would happen to prices?

If Congress reduced the period of patent protection from 20 years to 10 years, what would likely happen to the amount of private research and development?

What is a barrier to entry? Give some examples.

What legal mechanisms protect intellectual property?
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