How does a natural monopoly differ from the more general monopoly market structure we're used to?

A natural monopoly is a subset of the monopoly market structure that we looked at previously. It's a special case, where a monopoly market structure can be more efficient for society (than opposed to the perfect competition market structure). Natural monopoly's normally occur where there are large fixed costs for entering the industry, such as the railway industry. In this industry, the fixed costs are very high to build railways around the country. Thus, because of the essential nature of these services, to ensure their provision, a natural monopoly will arise. As we mentioned last week, Monopoly's will be regulated because of the high prices that they will charge. This is still the case for a natural monopoly, however they are allowed to operate at a price higher than what is allocative efficient, otherwise they would be making losses because of the high fixed costs (that tend to be apparent with natural monopolies).

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Answered by Samuel H. Economics tutor

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