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.

Asmall town wants to build some new recreational facilities. the proposed facilities include a swimming pool, recreation center, basketball court and baseball field. the town council wants to provide the facilities which will be used by the most people, but they face budget and land limitations. the town has $400,000 and 14 acres of land. the pool requires locker facilities which would be in the recreation center, so if the swimming pool is built the recreation center must also be built. also, the council has only enough flat land to build the basketball court or the baseball field. the daily usage and cost of the facilities (in $1,000) are shown below. which facilities should they build? facilityusagecost ($1,000)landswimming pool4001002recreation center5002003basketball court3001504baseball field2001005