Can someone please tell me the difference between competetive monoploy and natural monopoly?
Does opportunity cost include both implicit and explicit costs? I always thought it includes only imlicit costs, please clarify this.
How is economic profit and normal profit related?
Thank you in advance.
A competitive monopoly arises when one firm has an advantage (_ unique to that firm _) that prevents others from being competitive. The advantage may be a skill that only they possess, or it may be a legal advantage (e.g., a patent).
A natural monopoly arises when _ the nature of the business _ makes it more efficient to have one firm instead of more than one firm; e.g., when the economies of scale favor a single large firm. The classic examples are utilities; it is inefficient to have gas pipes or electricity lines or water pipes or whatever from multiple, competing firms in the same area.
Yes: opportunity costs are implicit costs only.
When economic profit = 0, accounting profit = normal profit.
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There was a question where they asked ‘Which of the following most accurately describes the competitive structure that is characterized by a firm that operates with the lowest average total cost and has the capacity to produce all of an industry’s output?’ And the choices were Natural monopoly, competetive monopoly and oligopoly.
But like you said that in competetive monopoly the firm has an advantage over others from being competetive, does this mean that they might have the lowest cost of production or might have the highest output production capacity? The answer to the above question was Natural Monopoly, can you please explain why is it so?
In a competitive monopoly the monopolist doesn’t necessarily have the lowest cost of production; if I have a patent I can have very high production costs, but low-cost firms are legally barred from competing with me. (This happens all the time in the pharmaceutical industry.)
In a natural monopoly, however, the monopolist has the lowest average total cost (because of their sheer size: economies of scale), and the required capacity (again, because of their sheer size).
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A natural monpoly is a monopoly in an industry in which it is most efficient (involving the lowest long-run average cost) for production to be concentrated in a single firm. This market situation gives the largest supplier in an industry, , an cost advantage over other actual and potential competitors. examples include public utilities such as water services and electricity whereas competitve monopoly occurs when firm has an advantage that other firms do not posess.Example firm having patent.Therefore natural monpoly occurs due to economies of scale whereas competitive monopoly due to an advantage that other firms do not have .
Opportunity cost is a cost associated with a decision that includes both the explicit and implici** t** costs. The unique aspect of opportunity cost is that it also includes costs associated with making an alternate decision. The costs associated with an alternative are called implicit costs. The accounting cost of making a decision is called the explicit cost
When economic profit is equal to zero, this occurs when the difference between total revenue and total cost equals zero. Normal profit is different than accounting profit because opportunity cost is taken into consideration. Normal profit is the minimum level of profit needed for a company to remain competitive in the market. Also known as “economic profit”.
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