Economics Perfect Competition Questions
A natural monopoly refers to a market situation where a single firm can efficiently meet the entire market demand at a lower cost compared to multiple firms operating in the same industry. This occurs due to significant economies of scale, where the average cost of production decreases as the firm's output increases. As a result, it becomes economically unviable for other firms to enter the market and compete with the natural monopoly. Natural monopolies often arise in industries with high fixed costs, such as utilities like water, electricity, or natural gas distribution, where the infrastructure required for production or distribution is expensive to duplicate.