00:01
So here we first have to know what a natural monopoly is.
00:04
And in economics, that's simply an industry that's featuring or experiences decreasing average costs.
00:11
That is the bigger that any company gets, the cheaper they can sell their product for, right? as you grow and you grow and you grow and you grow, it always works.
00:20
Your product is always going to get cheaper to produce.
00:23
Classic examples of this are like power companies, right? power companies have a lot of cost in terms they have to set up the electric grid and maintain the electric grid.
00:35
But once the infrastructure is set up, they can sort of add people into the network at very low cost, right? so they're making a lot of money on the marginal person, right? it's all fixed costs.
00:47
And those fixed costs are getting shrunken down as you expand them and amortize them over a larger and larger quantity, right? so we've got a few options here, right? a, costs are low with many firms.
01:04
So obviously this is wrong.
01:08
If there are many firms, they won't be able to produce much, right? if there are many, many firms in this market, they're not going to be able to produce much.
01:15
And if they can't produce much, they're going to have very high average costs.
01:19
So cost, this is actually the opposite, right, of what is correct.
01:24
B, lower for small firms...