Question

Provide an example of a natural monopoly and briefly explain why your example meets the economic definition of a natural monopoly. (6 points) HTML Editora X X B IV A A En I 를 들 들 Vi 12pt Paragra O words

Answer 1

A natural monopoly will typically have very high fixed cost which makes it more beneficial for one firm to produce the good instead of many firms.

The high fixed cost in terms of infrastructure, resources etc. gives very high advantage against potential entrants.

An example would be that of public water facility, It requires high cost of setting up pipe lines across the city. This is very difficult for the potential entrant to do and set up another system of pipelines. In doing so the competition wilk Increase and the profits will reduce