Question

Distinguish between Natural and artificial monopolies

Answer 1

An artificial monopoly is a monopoly created by law, for example, the state makes an arrangement with a specific post service, making it the main or the only postal service in the country.

A natural monopoly is a monopoly that is no enforced but which emerges due to high infrastructure costs, so for example the infrastructure of water supply makes the company who built the pipes the monopoly.

Answer 2

The difference between natural monopolies and artificial monopolies is that a natural monopoly is created by natural barriers to entry whereas an artificial monopoly is created when a firm is able to maintain control over the industry.  

Further explanation:

Natural monopoly: A natural monopoly is created due to the natural barriers to entry like huge costs or usage of sophisticated technology that enables the sole firm in the industry to make huge profits. A natural monopoly is created due to huge start-up costs or usage of special kinds of raw materials, equipment, techniques and advanced technology in the production of a specialized good or service.  

Artificial monopoly: An artificial monopoly is referred to as a large firm that is able to maintain control over the entire industry. It is a large firm that has no benefits in the form of production efficiency over the smaller firms but still manages to be a sole firm in the entire industry.  

Learn more:

1. Learn more about cartel and monopoly

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2. Learn more about monopoly

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3. Learn more about a competitive market

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Answer details:

Grade: Senior School

Subject: Economics

Chapter: Monopoly

Keywords: distinguish, between, natural monopoly, and artificial monopoly, natural barriers to entry in an industry, sophisticated technology, control over the industry, sole firm in the entire industry, advanced technology in the production of a specialized good or service, able to make huge profits.