QUESTIONS FOR REVIEW 1. Define natural monopoly. What does the size of a market have to do with whether an industry is a natural monopoly?
QUESTIONS FOR REVIEW 2. Describe the three attributes of monopolistic competition. How is monopolistic competition like monopoly? How is it like perfect competition?
A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller in its market because other firms cannot enter the market and compete with it.
An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a lower cost than could two or more firms. A natural monopoly arises when there are economies of scale over the relevant range of output.