Which of the following statements is true ?
A) A vertical merger is a merger of firms that compete in the same market.
B) The rule of reason doctrine declares that the existence of monopoly alone is illegal.
C) Government regulation is economically justifiable for a natural monopoly.
D) Deficient information on unsafe products causes underconsumption.

Question

Quizplus · Accepted Answer

Government regulation is justified for a natural monopoly because such a company will be the sole supplier of a product or service that consumers cannot do without, so without regulation, the company could charge monopoly prices, resulting in consumer surplus loss. A) is incorrect because a vertical merger is a merger of firms operating in different stages of the production process. B) is incorrect because the rule of reason doctrine states that monopolies are not illegal unless they engage in anti-competitive behavior. D) is incorrect because deficient information on unsafe products causes overconsumption, as consumers may not be aware of the risks associated with the product.

Which of the Following Statements Is True