Explain what a natural monopoly is. Why is it that, even though a natural monopolist might be earning high economic profits, other firms will still decline to enter the industry and compete against the incumbent?
2007-11-04 12:24:33 · 5 answers · asked by Anonymous in Social Science ➔ Economics
A natural monopoly is any industry that is responsible for dispensing or making use of a limited resource. Electricity and communication services aren't natural monopolies just because of the expense of the infrastructure, but also because of the limited availability of space between houses to run lines. Radio wave communications create natural monopolies because you can only send one signal at a time at any frequency in a given area, and there are a limited number of frequencies to be dished out. Road creation is a natural monopoly because they take up a great deal of space - you really can't have more than one set of roads leading to your house.
2007-11-04 12:39:14 · answer #1 · answered by Mythological Beast 4 · 0⤊ 0⤋
you should do your own homework.
Natural monopoly in an industry occurs because there is large fixed cost - it will deter incumbents from entering the industry because they (the incumbents) may not be able to cover the fixed cost e.g. in certain cities, the transit systems (bus, rail) are owned by one firm in the industry - hence a natural monopoly - because they can set price (market power).
Suppose an incumbent decides to enter the industry for the rail transport - they will have to sink a large fixed cost and built new rail tracks - very unlikely...
Duh! therefore natural monopoly sets price at MR=MC = large profit box - earn lots of dough to buy spinning rims and go to strip joints and get lap dances from hoes.... and still, no incumbents will enter.. all about large fixed costs... ya dig??
2007-11-04 16:06:23 · answer #2 · answered by Anonymous · 1⤊ 0⤋
If there is some natural barrier to entry or huge entry costs. Imagine the first companies to supply people with electricity or telephone service. They had to put up poles everywhere and string wire to each new customer. If some house way out in the country wanted service, it could be miles of wire.
2007-11-04 12:29:11 · answer #3 · answered by hottotrot1_usa 7 · 1⤊ 0⤋
just drop out of school. you're an idiot.
2007-11-04 12:28:06 · answer #4 · answered by Anonymous · 0⤊ 3⤋
Do your own homework!!!
2007-11-04 12:26:52 · answer #5 · answered by Tristan Robert Due March 20 3 · 0⤊ 2⤋