If government officials break up a natural monopoly into four smaller firms, then
A)each firm will be unable to maximize profits due to increased competition.
B)competition will force firms to produce surplus output, which drives up price.
C)the average cost of production will increase.
D)consumers will benefit from lower average total costs.

Question

Quizplus · Accepted Answer

Breaking up a natural monopoly into smaller firms can lead to higher average costs because natural monopolies typically have economies of scale, meaning that one large firm can produce at a lower average cost than multiple smaller firms.

If Government Officials Break Up a Natural Monopoly into Four