Standard 2
Understand the fundamental concepts
relevant to the institutions, structure,
and functions of a national economy
SS.912.E.2.6
Examine the benefits of natural
monopolies and the purposes of
government regulation of these
monopolies
An entry barrier is something that
prevents you from opening a
business in a particular industry
Preventions:
(1) Sometimes you just need to start as a
really big firm (example: nuclear power
plant)
(2) Another firm may have a license or
patent that precludes you (example:
USPS)
(3) Somebody else owns the vital resource
Natural monopoly- a market situation in
which the average costs of production
continually decline with increased output;
the average costs of production will be
lowest when a single, large firm produces
the entire output demanded by the market
That is, one large firm can produce more
efficiently and at a lower average cost than
several smaller firms
With natural monopolies, it’s very difficult
for new firms to open and compete with
existing firms
Therefore, the possibility of abusive
market power exists
The government may regulate these firms
to eliminate or reduce possible abuses
Video: History Channel Black Gold rise of
Standard
Focus: Understanding Economics in US History
Lesson 25 The Economic Effects of the
Nineteenth-Century Monopoly
Video: History Channel Black Gold
breakup of Standard