If the government breaks up a monopoly that does not practice discrimination and faces a horizontal marginal cost curve into a perfectly competitive market, _____.
A)output and price will decrease
B)output will increase and price will decrease
C)output and price will increase
D)output will decrease and price will increase
E)output and price will remain unchanged

Question

If the government breaks up a monopoly that does not practice discrimination and faces a horizontal marginal cost curve into a perfectly competitive market, _____.​
A)output and price will decrease
B)output will increase and price will decrease
C)output and price will increase
D)output will decrease and price will increase
E)output and price will remain unchanged

Quizplus · Accepted Answer

Breaking up the monopoly will increase competition, leading to an increase in output. The horizontal marginal cost curve means that the monopoly is already producing at the minimum efficient scale, so the increase in output won't lead to an increase in production costs. This increase in competition will also lead to a decrease in price. Therefore, output will increase and price will decrease.

If the Government Breaks Up a Monopoly That Does Not