ECON 1B03 Lecture Notes - Lecture 12: Natural Monopoly, Demand Curve

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Module #36 - 9. 1 monopoly output and price decisions. The basic reason for monopoly is barriers to entry. A single firm owns a key resource that no other firm can access or has a close substitute for a) In reality, this is rare because firms are big and international in scope. The government gives one firm the exclusive right to produce and sell some good a) b) Government can give a firm sole rights to sell in a particular market, like cable. An industry is a natural monopoly: a) b) c) A single can supply a good or service to an entire market at a lower cost than could two or more firms. A natural monopoly arises when there are increasing returns to scale over a relevant range of output. The firm operates on the downward sloping part od its average total cost curve, so it can increase output and still lower its average costs.