10. Public policy toward monopolies Suppose that there is only one provider of a

Question

10. Public policy toward monopolies Suppose that there is only one provider of a service in a state. Because this provider experiences economies of scale, the government does not want to break it into smaller pieces, but it does want the provider to supply the efficient quantity Which of the following policy options might most effectively enable the government to achieve its objectives in this situation? Regulate the firm's pricing behavior Turn the company into a public enterprise. Do nothing at all. Use antitrust laws to increase competition.

Explanation / Answer

The government doesn't want to break the firm into smaller pieces but wants the provider to supply the efficient quantity, therefore the government will regulate firm's pricing behavior. Government imposed price limit that a monopoly can charge it's consumers is an example of government's way of regulating monopoly behavior. This will give the firm incentive to provide efficient quantity.

Answer- Option A

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