Question

Briefly describe the typical average cost curve and the marginal cost curves most often faced by monopolists.

Briefly explain how a natural monopoly arises.

Answer 1

In a monopoly where a unique product is manufactured and the consumers consume unequivocally owing to its demand we observe several cost features. An average cost curve in a monopoly obtained by dividing the total cost spent on products by the number of products manufactured ..Is represented by TC/Q where TC is total cost and Q is number of products. It is upward sloping or U - shaped curve in a monopoly as the cost remains same but the products keep on increasing , on the other hand a marginal cost curve is always downward sloping owing to lack of perfect competition in the market .Sellers usually decrease the prices of their products in order to increase their product sales thus making the price of the product equal to cost or lower than the cost .This determines the cost curve to be downward sloping .

The origin of a natural monopoly is attributed to the distinct or unique products a firm produces that has an unequivocal demand all over the market for where a single company or a market force gains an overall advantage of its unique products .In the case of natural monopoly the company or a single individual acts as the price determiner .