economies of scale, one producer can serve the entire market more efficiently than a number of smaller

producers that would need to make duplicate physical capital investments.

A natural monopoly can also arise in smaller local markets for products that are difficult to transport. For

example, cement production exhibits economies of scale, and the quantity of cement demanded in a local area

may not be much larger than what a single plant can produce. Moreover, the costs of transporting cement over

land are high, and so a cement plant in an area without access to water transportation may be a natural

monopoly.

Control of a Physical Resource

Another type of monopoly occurs when a company has control of a scarce physical resource. In the U.S.

economy, one historical example of this pattern occurred when ALCOA—the Aluminum Company of

America—controlled most of the supply of bauxite, a key mineral used in making aluminum. Back in the
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