00:01
Hey everyone, today we're solving problem number 14 from chapter 9 of the textbook, which asks us, in what sense is a natural monopoly, in quotes, natural.
00:11
So the definition of a natural monopoly is that you have barriers to entry other than a legal measure, so other than the law.
00:19
Legal monopolies, obviously, do have barriers to entry that are the law.
00:24
So i've taken out this particular section down here in your textbook reading, and it actually gives you the answer.
00:30
So when economies of scale are large, sorry about that, when economies of scale are large relative to the quantity demanded in the market, we have a natural monopoly.
00:47
Natural monopolies often arise in industries when the marginal cost of adding an additional cost to rate is very low once the fixed cost of an overall system are in place.
00:57
And that right there is your answer.
00:59
That explains why it is natural, because you would expect margin.
01:03
Cost of adding each additional cost to be low once your fixed costs are in place.
01:07
That's what makes a natural monopoly natural.
01:11
I'm just going to circle that.
01:13
It's word for word that literally is how you respond to this question.
01:19
You can read on...