natural monopoly

  

Definition

Situation where one firm (because of a unique raw material, technology, or other factors) can supply a market's entire demand for a good or service at a price lower than two or more firms can. Such situations occur usually in case of utilities or where a market can support only one producer (because the decreasing returns to scale make the optimum plant size large in relation to the demand) or where long-range average total cost is declining with higher output throughout the range of the possible demand.

Use natural monopoly in a sentence

  • The electric company has a natural monopoly in my town because it is the only supplier found for ten miles in every direction.

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