Question

If the United States has thousands of cement producers but a small town has only one, is this cement producer a monopolist?

a) Yes, because it is the sole producer in the small town
b) No, as there are thousands of other producers in the country
c) It depends on the market structure of the small town
d) No, as there is only one producer in the small town

Answer 1

The cement producer in a small town can be considered a monopolist if it's the only supplier and there are no close substitutes due to high transport costs, creating a local natural monopoly. However, if there are viable alternative sources for cement, the producer may not be a monopolist.

Step-by-step explanation:

Whether the single cement producer in a small town is considered a monopolist largely depends on the market structure of that town. In the scenario where the cement producer is the sole supplier in a local market and there are no close substitutes due to the high cost of transporting cement, the firm can operate as a natural monopoly within that area. This situation mirrors historical instances where a single company controlled a scarce resource, making it difficult for others to compete, such as ALCOA's control over bauxite in the 1930s.

However, if there are other viable options for obtaining cement, either through different modes of transportation or from near-enough producers that can supply the demand without incurring prohibitive costs, then the cement producer in the town might not hold a monopoly status. The demand in the area and the economic scales of producing cement will play a key role in establishing whether the firm is a monopolist or not.