If the government attempts to break up a natural monopoly to enforce competition in an industry
A)the average cost of producing the good will increase.
B)the smallest firm will have a significant cost advantage over the larger,less efficient firms.
C)the average cost of producing the good will decrease.
D)the price paid by consumers will be expected to remain the same.

Question

Quizplus · Accepted Answer

Natural monopolies exist because of economies of scale; that is, the average cost of production decreases as the scale of production increases. Breaking up a natural monopoly often results in smaller firms that are less efficient and have higher average costs of production, which would lead to an increase in the overall cost of producing the good. As a result, the price paid by consumers may also increase.

If the Government Attempts to Break Up a Natural Monopoly