What is a Natural Monopoly? - A Level and iB Economics

[@fatoomgierdien2181]

Thank you much. Cape Town

[@solefreakks7905]

🐐

[@alexhoward7627]

Ok there is something that is REALLY bugging me and I can’t find the answer. By definition, the long run has no fixed costs. So WHY does the fact that there are high fixed costs affect the LRAC??? It should only affect the short run AC curve which would look like an L, but long-run would depend on the economies of scale, which have nothing to do with the fixed costs. Please can you clarify this for me.

[@oliviamorgan9680]

would it not be to do with their variable costs

[@aim04n]

Their costs are spread out over time, so initially at first they’re paying more for example, like train trains, capital, labour, all of that, but as it gets out of the way - and you can’t really pay a rent on a fixed cost (such as the train tracks) the costs drop in the long run, which leads to the lower AC in the long run, meaning they have lower costs. IN ECONOMICS TERMS: At the beginning of the establishment of the Natural Monopoly, the operating costs and start-up costs are high, however due to the fixed costs being paid off by the firms, the Average costs decrease significantly in the long run, leading to a flatter curve

[@WijthaGayan]

thank you

[@tutor2u-official]

You're welcome

[@talalnadal7504]

god bless u

[@alexhoward7627]

I think you are making wrong statements here. The huge losses due to high AC > MC are in the short run, long run there are no fixed costs, AC is very low due to only needing to supply the actual water.

[@tutor2u-official]

Infrastructure needs replacing, maintaining, improving, expanding in the long run!