One justification for government regulation of a monopoly is that the unregulated monopoly apays its workers a lower wage than if the market were competitive bhas a very elastic demand curve ccharges a price higher than a competitive market price dsells too much of the product
Question
One justification for government regulation of a monopoly is that the unregulated monopoly apays its workers a lower wage than if the market were competitive bhas a very elastic demand curve ccharges a price higher than a competitive market price dsells too much of the product
Solution
The justification for government regulation of a monopoly is that the unregulated monopoly charges a price higher than a competitive market price.
Here's the step-by-step explanation:
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In a competitive market, there are many sellers and buyers. This competition tends to drive prices down to the level where they just cover the costs of production, including a normal profit.
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In a monopoly, there is only one seller. Without competition, a monopolist can charge a higher price than in a competitive market.
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The higher price charged by the monopolist is a form of market failure because it leads to a loss of consumer surplus and a deadweight loss to society.
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Government regulation can correct this market failure by forcing the monopolist to charge a lower price, closer to the competitive level. This can be achieved through price controls or anti-trust laws.
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Therefore, one justification for government regulation of a monopoly is that the unregulated monopoly charges a price higher than a competitive market price.
Similar Questions
If the government wants to regulate a natural monopoly it will force the firm to set price equal toGroup of answer choicesaverage cost.marginal cost.marginal revenue.None of the above.
One problem with government operation of monopolies is thatGroup of answer choicesa benevolent government is likely to be interested in generating profits for political gain.monopolies typically have rising average costs.a government-regulated outcome will increase the profitability of the monopoly.the government typically has little incentive to reduce costs.
The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price: multiple choicemay be higher than the monopoly price.may be so low that the regulated monopoly can't break even.may cause the regulated monopoly to engage in price discrimination.
In a natural monopoly,Group of answer choicesif the government requires marginal cost pricing, it will likely have to subsidize the firm.the marginal revenue curve is horizontal.the marginal cost curve is positively sloped.society would be better off if antitrust laws were used to create many different firms in the market.
What role do government regulations play in pricing decisions?They always increase the price of productsThey restrict the use of psychological pricingThey prevent predatory and discriminatory pricing in many jurisdictionsThey promote price wars
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