Assume that an industry is currently a monopoly.If the government breaks this monopoly up into a large number of small,perfectly competitive firms,which of the following will occur?
A)Both price and industry output will increase.
B)Price will fall and industry output will increase.
C)Price will increase and industry output will decrease.
D)Both price and industry output will decrease.

Question

Quizplus · Accepted Answer

Breaking up a monopoly into a large number of small, perfectly competitive firms will increase competition in the market, leading to a decrease in price and an increase in industry output. This is because each individual firm in a perfectly competitive market has no market power and must accept the market price. As a result, there will be pressure on firms to lower prices in order to remain competitive, leading to a lower overall industry price. In addition, the increased competition will lead to more efficient production and resource allocation, resulting in an increase in industry output.

Assume That an Industry Is Currently a Monopoly