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Natural monopoly

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Definition Edit

A natural monopoly is said to occur where one firm can produce at a certain level of output at a lower cost than could be achieved by any combination of two or more other firms, rendering it the only viable competitor. Natural monopoly arises out of the properties of productive technology, often in association with market demand, and not from the activities of governments or rivals.

Generally speaking, natural monopolies are characterized by steeply declining long-run average and marginal-cost curves such that there is room for only one firm to fully exploit available economies of scale and supply the market.

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