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Monopolies are, literally, the "single seller" in a particularindustry. While perfectly monopolized markets are as rare as perfectly competitive markets, there are elements of monopoly power in many markets, and understanging those elements is easiest if we consider the actions which would be taken by a perfect monopoly.There are two categories of monopoly:A natural monopoly, with its market dominance resting on high fixed costs (making entrance difficult for other firms) and on low marginal costs of production and -- as a result -- declining average costs. Declining average costs imply that large scale producers can produce more cheaply and hence undersell new entrants.Legal monopolies , where market dominance does not rest on a cost advantage but on a legal prohibition of other firms entering. If a state-owned telecommunications service or postal service prohibits other firms from entering, we have a legal monopoly. If patents prevent other firms from entering an industry, we have a legal monopoly granted to the firm owning the patent.
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