In the case of a natural monopoly,which government response is LEAST practical?
A) leave the monopolist firm free to maximize its profits
B) buy the monopolist firm and operate it as a government-owned entity
C) force the monopolist to break up into firms that compete with one another
D) subsidize the monopoly,so it can operate at the socially optimal production level
E) regulate the monopolist firm's price,to equal average total cost

Question

Quizplus · Accepted Answer

Forcing a natural monopoly to break up into competing firms is least practical because the nature of a natural monopoly is such that a single firm can produce at a lower cost due to economies of scale than could multiple competing firms. Breaking up a natural monopoly could lead to higher costs and prices for consumers.

In the Case of a Natural Monopoly,which Government Response Is