If regulators break up a natural monopoly into many smaller firms, the cost of production ?
Correct answer: A. will rise
- A. will rise
- B. will fall
- C. will remain the same
- D. could either rise or fall depending on the elasticity of the monopolist's supply curve
Explanation
A natural monopoly exists because one large firm can produce at lower average cost through economies of scale. Splitting it into smaller firms sacrifices those economies and generally raises production costs.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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