Natural Monopoly

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  • A theoretical market structure in which productive efficiency is guaranteed by a single producer rather than by many because of technical fac tors. Technical factors may impinge on resource avail ability, outlays, and technological advancement. As output increases, the single producer enjoys extensive economies of scale (low per-unit cost), from which con sumers might obtain lower prices.

    The marginal cost of producing incremental (additional) units is negligible to such an extent that no other market structure can supply the good more cheaply. A competitive market structure, for example, would gener ate comparatively higher per-unit cost.

    The amount of fixed cost necessary for production is a very important precondition for natural monopoly because it constitutes a significant proportion of total cost, which in turn affects per unit cost. ...

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