Question

Why does it make sense that Springfield's downtown subway system, when completed, will operate as a natural monopoly?

Answer 1

As big infrastructure costs make any competition impractical so it will operate as a natural monopoly.

A natural monopoly is a type of monopoly that occurs as a result of unusual circumstances in which high start-up costs and significant economies of scale result in only one firm being able to efficiently provide the service in a given territory. A natural monopoly company may be the sole provider, product, or service in an industry or geographic location. Natural monopolies are permitted when a single company can provide a product or service at a lower cost than any potential competitor, but they are frequently heavily regulated in order to protect consumers.

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