Chapter 10, Problem 1QFR

To determine

Distinction between Natural Monopoly and Monopoly

Explanation of Solution

The term Monopoly refers to a market situation in an economy where there prevails a single seller having exclusive rights to sell its products and tends to control the industry. For example, there was a time when only the US government enjoyed monopoly power over mail delivery. Later some other companies like UPS, FedEx etc. entered into this market.

A natural monopoly is a type of monopoly which enjoys the full monopoly powers in the market. Natural monopoly emerges when it makes sense for the single firm that prevails in one sector with high productivity. In this scenario, the other competitors cannot enter due to tight barriers or high cost of entry along with infrastructural set up. The examples of natural monopoly are seen in case of railways, plane manufacturing, utilities etc.

Economics Concept Introduction

Introduction:

In microeconomics, both the concepts of natural monopoly and monopoly are subjected to imperfect competition. Natural monopoly and monopoly belong to same market, in fact they possess a lot of similar features. There are only few scenarios which make different from one another.