Question

Briefly explain any three reasons why the performance of natural monopolies contradict (deny)the long-run equilibrium position of a monopoly in South Africa?

Answer 1

In comparison to normal monopoly where economic profit always prevails over the long run, the natural monopoly does not enjoy these benefits.

What is a natural monopoly?

This is an economic situation whereby the average costs are declining and the consumer exploitation is increasing and often happens when the fixed costs are greater than the variable costs.

Generally, in the long-run in monopoly market, the prices and profits can remain high as ever.

In a situation, the monopoly firm is unable to supply the quantity demanded by the consumers at lower costs and thus, customers are forced to pay more for same quantity.

In the case of South Africa Monopoly, the prices were very high and the government was unable to regulate it.

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