Question

What are the differences between a natural monopoly and a legal monopoly?

75 word response

Answer 1

Natural monopoly is a firm which has considerable economies of scale i.e. they can produce goods at a cheaper cost as compared to other smaller firms serving the market. for example, an electricity company, if there are three small companies the cost of electricity supply will be much more higher. Government can regulate these and decrease the price for the consumers which will reduce the dead weight loss the monopoly cost.

Legal monopolies are those firms those are a monopoly because of the government provided them with, like a patent, copyright etc. It allows them to exploit the market and make a profit out of it. It is because of some invention they have done and are entitled to some profit. Here, the dead weight loss can't be regulated away by the government.