Natural Monopoly Supplies All for a Lower Price

464 WordsFeb 24, 20182 Pages
atural monopoly is a type of monopoly that was because of high fixed or set up cost of operating a business in an industry. And governments often regulate those in operation, to make sure that every consumer can get a fair deal. In fact, the size of production that can achieve productive efficiency may be a high proportion of the total demand of the products in the industry. Natural monopolies are often associated with industries sector where there is a high ratio of fixed to variable costs. For example, for a product to establish a national distribution network the fixed cost can be enormous but the marginal cost of each additional output supply can be very small. Natural monopoly occurs when one large business can supply the entire market at a lower price than two or more smaller ones, which there cannot be more than one efficient provider of a good. In this situation, competition might increase costs and prices. It is an industry where the minimum efficient scale is a large share of total market demand such there is room for only one firm to fully exploit all of the available internal economies of scale, and the industry has long run average cost curve falls continuously as output rises. Market failure is when resources cannot be efficiently allocated due to the fault of price mechanism caused by factors such as establishment of monopolies. It’s also used to describe when market can’t satisfy public interest, and will result of a loss of economic and social welfare.

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