giving a real world example of a firm that operates as a pure monopoly.

• Give an example of a monopolist that operates in an industry that is not perfectly competitive.
• Make sure the company is a monopolist, and not anoligopolist, or a firm engaged in monopolistic competition?
• What is the source of their market power?
• Does the company restrict output in order to charge a price above marginal cost?
• Is there a threat of competition reducing the company's profit in the long-run?
• why the firm is able to maintain it's market power in the long-run.

Example: PG&E has a monopoly for providing natural gas to residents of Modesto. There is no other company that supplies gas to the home that is needed for some central heaters, gas ovens, etc.. The source of their market power is that they have a contract or government license from the City of Modesto. In other cities, different companies may have the monopoly power in the market for natural gas. SDG&E, which is owned by Sempra energy, is the only company that sells gas and electricity to the residents of San Diego. There is no threat of another company taking customers away from PG&E by lowering the price, since PG&E is the only company with legal access to the network of pipes that bring gas to people's homes. Similarly, the city of Modesto will not allow another company to set up a competing network of gas lines that also run to everyone's home. Even if another company was allowed to provide us with gas, once the market was opened up to competition, the price would be driven down. At a new lower price for gas the profit for each firm would be so low that it woud not cover the cost of building out a new network of gas lines to everyone's home. Because the fixed cost of building out a network of gas lines is so high, the government typically only grants monopoly rights to one company. Companies only have incentive to build an expensive network of gas lines if they know they will be the only ones who get to supply gas through that network, and they can get monopolist prices. .