Economics 1021A/B Lecture Notes - Lecture 13: Marginal Revenue, Natural Monopoly, Demand Curve
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ECON 1021A/B Full Course Notes
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That produces a good or service for which no close substitute exists. In which there is one supplier that is protected from competition by a barrier preventing the entry of new firms. A monopoly has two key features: no close substitutes. If a good has a close substitute, even if it is produced by one firm, that firm effectively faces competition from the producers of the substitute. A monopoly sells a good that has no close substitutes: barriers to entry. A constraint that protects a firm from potential competitors is called a barrier to entry. Three types of barriers to entry are: natural, ownership, legal. Natural barriers to entry create natural monopoly. A natural monopoly is a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost. In a natural monopoly, economies of scale are so powerful that they are still being achieved even when the entire market demand is met.