A firm is a monopoly if
- It is the sole seller of its product
- its product does not have close substitute
- the market has barriers of entry
Three sources of bariers of entry
- A single firm owns a key resource
- The govt gives a single firm the exclusive right to produce the good
- Costs of production make a single producer more efficient than a large number of producers
A natural monopoly is when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
Natural monopoly arises when there are economies of scale over the relevant range of output
The ATC in a natural monopoly is downward sloping due to huge FC and small MC
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