What would be the impact if the government forced the break-up of a natural monopoly to promote greater competition in an industry?
A) The average cost of producing the good would increase.
B) Smaller firms would have a cost advantage over larger firms.
C) The average cost of producing the good would decrease.
D) The price paid by consumers would be unchanged.

Question

Quizplus · Accepted Answer

Breaking up a natural monopoly, which typically benefits from economies of scale, would lead to smaller firms with higher average costs of production, as they cannot spread their fixed costs over as many units of output.

What Would Be the Impact If the Government Forced the Break-Up