Micro Economic Essay Example | Topics and Well Written Essays - 750 words

Micro Economic - Essay Example The giant company then dominates the market. The author refers to a monopoly that arises from economies of scale as a natural monopoly (Mukherjee 333). If the average cost goes down over the whole range of demand, then one seller can offer the product at a lower cost per unit, and more effectively than multiple suppliers. The market may start with numerous sellers, but naturally ends up with one seller that can take advantage in the best way to decrease the average cost. Public utilities such as natural gas sellers, electricity distributers, and garbage collectors have natural monopoly inclinations. A market that experiences decrease in average costs is likely to lead to a natural monopoly. Monopoly may come up because of artificial legal barriers to new firms’ entrance to an industry. The law provides that no other organization can offer this service (Mukherjee 335). For instance, the law in India does not permit any other firm to supply Indian currency except the Reserve Bank. Government policies can be in different forms, though they all aim at limiting what a business can do, where particular products or prices become mandatory while others are illegalized. The ideal form of regulating monopoly may involve forcing a business to set equal prices to its marginal costs. Prohibitions may include anti-competitive agreements and referrals to the completion commission in which an agreement can be reached to correct the offending area of dispute. A company may dominate the market of a product if it totally controls the supply of raw materials. If it is a sole owner of the raw materials, it can keep new competitors out of the industry (Sandhu and Jain 308). A commodity of the same value can therefore not be manufactured to compete in the market. This will mean that the owner can utilize it to enjoy full power of monopoly. A patent may give an exclusive right to the patent holder to produce a given