If the Government Attempts to Break Up a Natural Monopoly

question 38

Multiple Choice

If the government attempts to break up a natural monopoly to enforce competition in an industry

• A)the average cost of producing the good will increase.
• B)the smallest firm will have a significant cost advantage over the larger,less efficient firms.
• C)the average cost of producing the good will decrease.
• D)the price paid by consumers will be expected to remain the same.

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Definitions:

Purely Competitive Market

Another term for a perfectly competitive market, emphasizing its features like a large number of small firms and identical products.

Marginal Revenue

The increased earnings resulting from the sale of one extra unit of a good or service.

Marginal Cost

The increased cost resulting from the production of an additional unit of a good or service.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, indicating the actual profitability of the company beyond just accounting profit.