Explain why firms that enjoy economies of scale or scope are candidates for regulation
Where economies of scale exist, one firm can produce a good at lower cost than if output were split into two or more firms. In such a natural monopoly situation, it is typical to have just one firm but to regulate it so cost savings can be passed on to consumers. Where economies of scope exist, one firm can produce a bundle of goods more cheaply than two or more separate firms can. Again, that firm may be allowed to produce the bundle of goods but be subjected to regulation so consumers receive the benefit.
You might also like to view...
The U.S. tax code allows taxpayers to deduct the value of charitable contributions from their taxable income
Explain if this is an example of an incentive, and what effect this policy is likely to have on the amount of charitable contributions in the United States.
The table above shows the marginal benefit from pizza and the marginal cost of pizza in cans of soda forgone. The allocatively efficient quantity of pizza is ________ pizzas per day
A) 70 B) 10 C) more than 70 D) 40
For a consumer bound by the collateral constraint, a reduction in the price of the collateral leads to
A) nothing. B) an increase in current consumption and a decrease in future consumption. C) a decrease in current consumption and no change in future consumption. D) a decrease in current and future consumption.
How can restricting entry into a union help boost members' wages without the union specifically setting wages?
What will be an ideal response?