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Unformatted text preview: A natural monopoly is a firm with such extreme economies of scale that once it begins creating a certain level of output, it can produce more at a far lower cost than any smaller competitor. Natural monopolies exist far more frequently than pure monopolies, mainly because the requirements are not as stringent. Natural monopolies occur when, for whatever reason, the average cost curves decline over a relevant span of output quantities. A firm with high fixed costs relative to its marginal costs will have declining average costs for a significant span of quantities. A firm with a decreasing marginal cost structure will also have declining average costs. For example, utilities and software are two industries where natural monopolies occur often. An Example A monopoly differs from competitive firms in that it is not a price taker. Because it is the A monopoly differs from competitive firms in that it is not a price taker....
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