Natural monopoly

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  • Created by: Jade
  • Created on: 29-11-12 13:11
What is a natural monopoly ?
A natural monopoly is a market situation where a monopolist has overwhelming cost advantage.
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In theory, this can come about where a monopoly has?
Sole ownership of a resource or where past ownership of capital resources means that it is difficult and extremely expensive for competitors to duplicate these installations.
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The nature monopoly case is one that has consistently been put forward in support of ?
Public ownership of services such as water, gas and electricity. It is also applicable to railways and canals.
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Explain how in case of railways, canals etc, benefits from economies of scale can be gained?
Fixed costs are a high percentage of total costs. As output increases, average costs will fall, offering the prospect of substantial benefits to be gained from economies of scale.
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Explain a natural monopoly diagram
It shows a falling long run average cost curve - indicative of continuing economies of scale. A monopoly will receive abnormal profits. If it behaved like a competitive firm, there are losses where P=MC.
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In the case of railways, why is it not necessary for rival companies to construct their own infrastructure?
Waste and service duplication would occur.
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Other cards in this set

Card 2

Front

In theory, this can come about where a monopoly has?

Back

Sole ownership of a resource or where past ownership of capital resources means that it is difficult and extremely expensive for competitors to duplicate these installations.

Card 3

Front

The nature monopoly case is one that has consistently been put forward in support of ?

Back

Preview of the front of card 3

Card 4

Front

Explain how in case of railways, canals etc, benefits from economies of scale can be gained?

Back

Preview of the front of card 4

Card 5

Front

Explain a natural monopoly diagram

Back

Preview of the front of card 5
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