What would be the impact if the government forced the breakup of a natural monopoly to promote greater competition in an industry?
A) Smaller firms would have a cost advantage over larger firms.
B) The price paid by consumers would be unchanged.
C) The average cost of producing the good would increase.
D) The average cost of producing the good would decrease.

Question

Quizplus · Accepted Answer

Natural monopolies exist in industries where it is more efficient to have one firm produce the good or service due to economies of scale. If the government forces the breakup of a natural monopoly, the resulting smaller firms may not be able to achieve the same economies of scale, thus leading to a higher average cost of producing the good. This could lead to higher prices for consumers. While there may be increased competition in the industry, it may not be enough to outweigh the impact of higher costs.

What Would Be the Impact If the Government Forced the Breakup