natural monopolies

what are three assumtions of this market

1. huge start up costs

2. large potential for economies of scale

3. optimum level of firms in the market is 1

why is one firm rational for supplying the whole economy?

1. competition would result in wasteful distribution of resources

2. There is also the limited scope of economies of scale and allocative and productive inefficiencies

why must they be regulated

1. exessive pricing

2. low output of service

what is the probelm with regulating monopolies to the allocative efficient point(MC=AR)

at the point where allocative efficiency occours, average cost is higher than average revenue leading to sub-normal profit.

this means there is no point for natural monopoly firms to exist seeing as they cannot make normal profit in the short and long run