Which (if any) of the following scenarios is the result of a natural monopoly?
Instructions: You may select more than one answer.
a. Patent holders of genetically modified seeds are permitted to sue farmers who save seeds from one planting season to the next.
b. Doctors in the United States are prohibited from practicing without a medical license.
c. There is one train operator with service from Baltimore to Philadelphia.
d. Coal is used as the primary energy in a country with abundant coal deposits.
Natural Monopoly Example
A natural monopoly is a monopoly that occurs naturally due to the characteristics of the market. This usually happens because of natural barriers to entry such as an economy of scale.
Answer and Explanation:
The single train operator is a result of a natural monopoly because having two railroads in profitable for two firms. This results in the first firm that operates on that route first too have a natural monopoly. No government interventions was needed to make this happen. Both answer A and B are monopolies caused by government actions not any natural occurring phenomenon. That being said, patents are needed to encourage growth and thus those monopolies are usually desired in the short-run. Answer D is not a result of a natural monopoly but in fact almost guarantees there is no monopoly. Since coal is abundant no firms can control the entire supply and thus many firms will be selling it.
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from Intro to Business: Help and ReviewChapter 3 / Lesson 13