Principles of Economics- Mankiw (5th) 309

Principles of Economics- Mankiw (5th) 309 - CHAPTER 15 M O...

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CHAPTER 15 MONOPOLY 319 We saw other examples of natural monopolies when we discussed public goods and common resources in Chapter 11. We noted in passing that some goods in the economy are excludable but not rival. An example is a bridge used so infre- quently that it is never congested. The bridge is excludable because a toll collector can prevent someone from using it. The bridge is not rival because use of the bridge by one person does not diminish the ability of others to use it. Because there is a fixed cost of building the bridge and a negligible marginal cost of additional users, the average total cost of a trip across the bridge (the total cost divided by the number of trips) falls as the number of trips rises. Hence, the bridge is a natural monopoly. When a firm is a natural monopoly, it is less concerned about new entrants eroding its monopoly power. Normally, a firm has trouble maintaining a monop- oly position without ownership of a key resource or protection from the govern-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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