Natural Monopoly (Evaluation Skills Video) | tutor2u Economics
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Natural Monopoly (Evaluation Skills Video)

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Here is a short video building analysis and evaluation arguments on this question: "Evaluate the impact of the existence of a natural monopoly on consumer welfare"

Natural Monopoly (Evaluation Skills Video)

Core Notes:

In a natural monopoly there are gains in productive efficiency from supplying products on a large scale.

Eval: However in a natural monopoly, a single supplier could in theory charge a very high price which might damage consumer welfare.

An industry regulator might decide to cap the prices of a natural monopoly to help achieve allocative efficiency and protect poorer families

Eval: But if MC<LRAC, then capping prices at marginal cost will inflict losses on the industry which might have damaging effects on investment and innovation.

A natural monopoly such as regional water utility has high barriers to entry causing X-inefficiency and higher bills for consumers

Eval: However, some of the supply chain to the final consumer might be deregulated to stimulate competition and thus lower prices

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