Answer:
Natural monopolies
Explanation:
Natural monopoly is a market structure characterized by a single supplier of a good or service. The reason for this type of monopoly is the amount of fixed costs that a given activity presents, which makes competition unfeasible. For example, water supply needs plumbing, which is expensive to produce on a large scale. Therefore, only one company provides the service, characterizing in the naturalness of the monopoly.
Natural monopolies benefit from economies of scale. An economy of scale occurs when the return on investment is proportionally higher than the investment expense. In natural monopolies this occurs over time as the fixed cost becomes decreasing. The larger the quantity of product supplied, the lower the fixed cost will be. For example, in the case of water supply, the fixed cost is the initial cost of installing the plumbing, which is a very high cost. In the cost structure, companies divide the fixed cost by the total of products supplied. As this supply increases, the proportionality of the fixed cost will become smaller and smaller.
