What is a natural monopoly?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

A natural monopoly is one in which there are major economies of scale.  To be technical, it is a market in which the long-run average cost of production continues to decline no matter how big the market becomes.  This is a "natural" monopoly because it makes economic sense to have one huge company supplying the good or service so that it can take advantage of the economies of scale.

The classic examples of natural monopolies come in areas such as public utilities.  For example, the more customers you have using an electric system, the lower the average costs of the wires and other infrastructure that are needed to provide the electricity.

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sid-sarfraz's profile pic

sid-sarfraz | Student, Graduate | (Level 2) Salutatorian

Posted on

Monopoly is when a unique product that has no substitute in market, is manufactured and provided to consumers by a single seller who sells at whatever price he wants. Like for example, water, gas etc

Basic characteristics are:-

  • Restricted entry
  • Single seller
  • Unique product with no substitute
  • Price can be high
  • Independent decision making

Natural monopoly is said to be when a single company producing a product can be accommodated by the economy, that produces goods at a low price then other firms.

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