ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -For example, the utility industry is a natural monopoly. The utility monopolies provide water, sewer services, electricity transmission, and energy distribution such as retail natural gas transmission to cities and towns across the country.

Detailed explanation-2: -Power generation was believed to be a natural monopoly because of economies of scale: it was less expensive for one firm to operate a few large power plants than for many firms to operate smaller power plants.

Detailed explanation-3: -An electric company is a classic example of a natural monopoly. Once the gargantuan fixed costs involved with power generation and power lines is payed, each additional unit of electricity costs very little; the more units sold, the more the fixed costs can be spread, creating a reasonable price for the consumer.

Detailed explanation-4: -Natural gas, electricity companies, and other utility companies are examples of natural monopolies. They exist as monopolies because the cost to enter the industry is high and new entrants are unable to provide the same services at lower prices and in quantities comparable to the existing firm.

Detailed explanation-5: -The case of tap water can be an example of a natural monopoly. It makes sense to have only one company providing a network of water pipes and sewers because the setting up of a national network of pipes and sewage systems entails very high capital costs.