Microeconomics – Real-World Monopolies

Microeconomics – Real-World Monopolies

Topic: Real-World Monopolies

Describe an example of a real-world industry or market that would be considered by economists to be a natural monopoly.

1. What characteristics of the industry make it a monopoly?
2. What is the impact of the monopoly power on its customers?
3. Why might government want to regulate natural monopolies?
4. How might such regulation be structured?

Solution Preview

Monopoly is whereby there is only a firm supplying a good or service to numerous consumers. The monopoly controls 100% of the market share in that particular industry. The main characteristic of a monopoly is that of a price maker. The monopoly firm sets prices and controls the level of supply thereby controlling demand. In addition, monopoly markets are characterized by profit maximization because of the industry’s ability to change the price and supply of a commodity.

(466 words)