Myth Of Natural Monopoly Essay

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In the previous article entitled the myth of natural monopoly, it is discussed that natural monopoly does not exist and that monopolies were made usually through government interventions. Such government interventions are in the form of regulations imposed to avoid the so-called “market failures”. What is natural monopoly? Natural monopoly is a market condition in which due to high fixed costs, it would be more efficient for only on firm to operate since this would ensure lower average costs in the long-run. It is said that utilities such as water, electric and telephone service industries. Because these utility companies require high capital for infrastructures, buildings and other technologies required for distribution and production, other companies,…show more content…
Regulation includes keeping an eye on the market and the investor firms while at the same time monitor and put into order other possible profit seeking movements made by firms. These regulations are classified into 3 according to the article. These are setting a criteria in determining price, providing a specified quality of output and placing restrictions into entry and exit from the market. Change in market structure from monopoly to oligopoly is brought about by a growth in demand of that product. The conversion from monopoly to into a competitive structure is due to 3 possible reasons. First, technological innovations which allow the firm to operate at a lesser variable and fixed cost. Second, producing the same output with a change in technology used which can result to much cheaper fixed costs than the previous one. Lastly, the existence of substitute
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