Research the terms, monopoly and natural monopoly, and post a scholarly definition of each term. Compare...

Research the terms, monopoly and natural monopoly, and post a scholarly definition of each term.

Compare and contrast the social costs and benefits of a monopoly.

Provide at least two options for the society to consider when dealing with a natural monopoly

Expert Solution

Monopoly : Monopoly refers to the market system that is characterized by the single seller and seller is price maker.

Natural Monopoly: it is specific case of monopoly where initial cost of starting business is relatively huge and average cost of output falls over relatively larger range of output.

Social costs of Monopoly:

Output in monopoly is less than competitive market and price is greater than competitive market. Hence, welfare of public is curtailed in monopolist market. Consumers have to pay relatively higher price in monopolist market. Consumer surplus is reduced in Monopoly market.

Benefits of Monopoly:

Monopolist firm tends to invest in research and development activities to deter potential competitors.

Monopoly is desirable in sin good sector such as wine, because monopoly firm charges higher price and reduces quantity supplied.

Considering Natural Monopoly:

first option, we must consider natural monopoly based on need to reduce the wasteful duplication. Electricity, water supply etc are perfect examples where natural monopoly is recommended.

Further, Natural monopoly must be promoted where economies of scale is larger and average cost falls over larger range of output.

Rahul Sunny answered 2 years ago

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