Wednesday
July 23, 2014

Homework Help: economics

Posted by Michelle on Sunday, July 24, 2005 at 6:29pm.

How would one argue that there is no such things as a natural monopoly? What factor are involved?


I would make a case that natural monopolies do not exist base on evaluation of the classic examples of "natural monopolies": transportation, telephone, port facilities, electricity.
Alternatives always exist, and the existance of structural alternatives create competitive forces.


This is NOT directly involved with the question, but it MIGHT be useful anyways.

Natural monopoly is when one large firm can supply to the whole market at a lower average cost than a number of small firms.
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The features of a Monopoly are that they are the only supplier of a product. There is no competition and this allows them to make abnormal profits. There are no homogenous products as a monopoly will try to make a variety of different products to stop other firms copying it. Monopolies are also price makers - which means that they can influence the price by restricting supply. There is also imperfect information in the market - consumers dont have all the information on the price and the products. (e.g. a monopoly can sell a product to a group of consumers at a high price, whilst hiding the fact that they are selling to another group of consumers a lower price. This would not be possible in a perfect market). Monopolies also create barriers to entry to stop other firms entering the market.
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A firm is a pure monopoly only if it is the only supplier of a good or service.

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