To restrict a firm's monopoly power, why can't antitrust authorities just set a floor or a ceiling in the market?
What will be an ideal response?
It is difficult to set a fair price in a monopolized market. Antitrust authorities can either set a price in the market that is equal to marginal cost or can require firms to set a price that is equal to average cost. The price set at marginal cost is called the efficient price or the socially-optimal price. While this is the price at which social surplus is maximized, in a natural monopoly, marginal cost is lower than average total cost at every quantity. So, at this price, the firm will experience an economic loss and will eventually exit the industry. Alternatively, the government could require firms to set the price at average total cost. This would allow the monopolist to stay in business as the firm would not incur losses. However, both these forms of price regulation would mean that the firm has no incentive to minimize costs or to innovate and produce new goods and services.
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What leads thousands of profit seeking entrepreneurs to misread the signals of the market-price system?
A) Poor budget policy on behalf of government officials B) The globalization of the world economy C) An artificial lowering of interest rates D) A poor knowledge of the basic principles of supply and demand
If a stock's dividend is expected to grow at a constant rate of 4 percent in the future
and it has just paid a dividend of $6.00 per share, and you have an alternative investment of equal risk that will earn a 7 percent rate of return, what would you be willing to pay per share for this stock? A) $6.66 B) $54.55 C) $200.00 D) $208.00
ATC always exceeds AVC
Indicate whether the statement is true or false
In a centrally planned economic system, who decides what and how much will be produced?
A. Consumers B. Privately owned businesses C. The government D. The people, by referendum every five years