government grants a patent for an invention to one firm, it may create a monopoly. When the government

grants patents to, for example, three different pharmaceutical companies that each has its own drug for
reducing high blood pressure, those three firms may become an oligopoly.

Similarly, a natural monopoly will arise when the quantity demanded in a market is only large enough for a

single firm to operate at the minimum of the long-run average cost curve. In such a setting, the market has

room for only one firm, because no smaller firm can operate at a low enough average cost to compete, and no

larger firm could sell what it produced given the quantity demanded in the market.

Quantity demanded in the market may also be two or three times the quantity needed to produce at the

minimum of the average cost curve—which means that the market would have room for only two or three
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