When does a natural monopoly arise?
Understand the Problem
The question is asking about the conditions or scenarios under which a natural monopoly occurs. Natural monopolies typically arise in markets where the cost of production is highly normalized, meaning that a single firm can produce the entire supply at a lower cost compared to multiple firms operating in the space.
Answer
A natural monopoly arises when the largest supplier has a significant cost advantage over other competitors due to large economies of scale.
The final answer is that a natural monopoly arises when the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors, typically due to large economies of scale.
Answer for screen readers
The final answer is that a natural monopoly arises when the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors, typically due to large economies of scale.
More Information
Natural monopolies are often seen in industries with high infrastructure costs, such as utilities like water, electricity, and natural gas. These monopolies are typically regulated by governments to prevent price gouging and to ensure fair access to essential services.
Tips
A common mistake is to confuse natural monopolies with monopolies created by government intervention, such as patents or licenses. Natural monopolies are not established by regulatory decisions but arise from the economic conditions of the market.
Sources
- Wikipedia: Natural Monopoly - en.wikipedia.org
- 15.6: Natural Monopoly - Social Sci LibreTexts - socialsci.libretexts.org
- Natural Monopoly: Definition, How It Works, Types, and Examples - investopedia.com
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