Unit 5 Assignment Example | Topics and Well Written Essays - 500 words - 1

Unit 5 - Assignment Example A natural monopoly is a monopoly that experiences economies of scale along its intact range of production. Alternatively, a natural monopoly is the type of monopoly that experiences a decreasing average total cost (ATC). In a monopolistic market, marginal revenue is always less than the price of goods. This is because monopolies have a downward slopping demand curve. In fact, at any given price and quantity combinations, a monopolist is required to reduce the prices of his commodities in order to sell an additional unit. This explains why a monopoly is a special market situation. Consequently, monopolies do not exhaust all available market opportunities. Monopoly and perfect competitive markets represents the two extreme in a market environment. In my own opinion, perfect competitive model is better than monopolies. This preference is based on economic aspects and market sustainability. In a perfect competitive market, ultimate efficiency in the production and distribution of goods and services is achieved. Consequently, monopolies lack efficiency in their production and distribution of commodities. In a competitive market, producers and distributors of commodities are obliged to operate efficiently in order to remain relevant (Bade & Michael, 2002). For example in a perfect competition, producers reduce prices of their commodities in order to increase their competitiveness. This in turn reflects on the production process where producers are forced to improve efficiency. On the other hand, monopolies have no immediate threats that would force them to reduce their prices or improve the quality of their products. Thus, monopolistic ma rket lacks efficiency. Lack of efficiency is mainly demonstrated through production and distribution of goods within a market. In an ideal case, a market is supposed to have a natural mechanism that balances the distribution of commodities against the available customers. Perfect competitive markets allow the mobility of