Natural Monopoly Phenomenon - Assignment Example

a. Why would the Justice Department care if two airlines merge? The Justice Department would care about the size of the resulting airline, and it becoming too big and risking monopoly. b. What is anticompetitive about two airlines merging? If there are fewer airlines, then there is less competition. 3. The US Postal Service is a monopoly because the federal government has blocked entry into the market for delivering first-class mail. Is it also a natural monopoly? What would happen if the law preventing competition in this market was removed?

Explain your answer. According to Foldvary (2010), “A "natural monopoly" is defined in economics as an industry where the fixed cost of the capital goods is so high that it is not profitable for a second firm to enter and compete. There is a "natural" reason for this industry being a monopoly, namely that the economies of scale require one, rather than several, firms. Small-scale ownership would be less efficient.” The USPS is a natural monopoly. Costs would go up if the competition was allowed in this market.

With natural monopolies, one firm can control an entire industry and still achieve the lowest price. 4. Patents are granted every 20 years. However, drug companies don’t have patents on new drugs for this long a time because it takes several years for FDA approval. In your opinion, should drug patents be extended for 20 years? Who would benefit? Who would not benefit? I do not believe that drug patents should be extended for 20 years simply because of the high cost of new drugs. Many people cannot afford their medication unless it is generic.

The consumer would not benefit, but the drug companies would.