Natural Monopoly

  • This occurs when the economies of scale are so high that it only make economic sense to have one company.
  • Increase in scale results into decrease in average cost.
  • In addition, this also mean that this is only a single seller, where it produces 100% of the market output.
  • Examples: Public utilies that provides gas, water, electricity, etc...

Traites to look for:

  • a single seller
  • produces branded to entry
  • creates barriers to entry
  • maximises profits

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