The market failure of imperfect competition is most likely to result if Peanuts 'R' Us:
A) keeps secret a discovery that excessive consumption of peanut butter causes nearsightedness.
B) discards broken peanut shells on to an adjacent recreational area in the production of peanut butter.
C) is subject to performance standard regulations by the PBRC (Peanut Butter Regulatory Commission).
D) acquires ownership of all peanut butter processing plants in the country.

Question

Quizplus · Accepted Answer

When Peanuts 'R' Us acquires ownership of all peanut butter processing plants in the country, they will have a monopoly over the peanut butter market. As a result, they can charge higher prices and limit output, leading to a decrease in consumer surplus and deadweight loss, which qualifies as market failure due to imperfect competition. A and B are examples of negative externalities, which can cause market failure of a different type. C, on the other hand, is an example of government regulation aimed to prevent market failure.

The Market Failure of Imperfect Competition Is Most Likely to Result