Perfect competition displays the market mechanism at its best in many respects, yet most markets in operation today are monopolistic or oligopolistic, composed of a few large firms. Should government regulation break up those large firms into several smaller firms to try to achieve perfect competition? Why or why not?
What will be an ideal response?
Perfect competition prevents firms from earning excess profits and forces them to produce the output quantity at which average cost is as low as possible. It has other beneficial effects, as well. In monopolistic or oligopolistic markets, a few large firms may charge high prices that yield large profits, but they may produce output quantities that do not match consumer preferences.Many economists and regulators believe that the achievement of perfect or near perfect competition is a desirable goal and that regulated firms should be required to come as close as possible to it in their behavior. But they do not all agree. Even if a perfectly competitive market were sustainable, it is not necessarily desirable, and may be an impossible goal.Moreover, large industries are characterized by economies of scale, which yields cost savings, and a lower price to consumers. Breaking up these large enterprises would force them to lose their economies of scale, which would increase costs, and thus the price to consumers.
You might also like to view...
In recent years, the cost of producing organic produce in the United States has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce
Which of the following best explains the effect of these events in the organic produce market? A) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in both the equilibrium price and the equilibrium quantity. B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price. C) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price. D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
Suppose that one-year Treasury bills yield 5 percent in the United States and 6 percent in France. Investors will prefer the U.S. securities if they expect the dollar to __________ against the euro over the next year
A) depreciate by less than 1 percent B) depreciate by more than 1 percent C) appreciate by less than 1 percent D) appreciate by more than 1 percent
In economics, ________ are limited but ________ are unlimited
A) wants; resources B) resources; wants C) money; ideas D) ideas; money
Current account transactions are payments and gifts that are related to the purchase or sale of
A) financial instruments only. B) both goods and services. C) goods only. D) services only.