After reading the article1
, explain how a ‘Natural Monopoly’ arises:
1. What is the peculiar shape of a natural monopolists average total cost (ATC) curve,
and what is the cause of that unusual shape? Fully explain why this type of ATC curve
is likely to result in a natural monopoly, and draw a contrast between the ATC curve
of a natural monopolist and that of a typical firm in a competitive industry.
2. Discuss the reason why the technology of chip manufacturing may soon drive the
industry to the status of a natural monopoly, and cite evidence from the article that
supports the claim that the industry is moving toward a single producer.