Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 2

Until the 1980s, AT T held a monopoly over the national market for phone services. Suppose that AT T argued that it was a natural monopoly, because the fixed cost of creating a nationwide phone network generated huge economies of scale, and that there was therefore no welfare loss associated with its monopoly. Counter this argument by explaining how even a natural monopoly causes deadweight loss.