Question

Public policy responses to monopolies:

1. aim to break up existing monopolies.

2. prevent new monopolies from forming.

3. ease the effect of monopoly power on consumers.

4. All of these statements are true.

Answer 1

Answer 4. All of these statements are true.

Public policies are designed to avoid monopolies due to the following short coming of Monopoly

• In monopoly the output is not efficient. That is monopoly fails to allocate the resources efficiently.
• Monopolist produces less quantity
• Monopolist charges price above marginal cost.

Due to the above mentioned causes the public policies attempt to break the existing monopoly in order to increase efficiency and social welfare.

Through anti trust regulation the creation of new monopoly is prevented.

Generally public policies are designed to regulate the monopoly and to control the price charged by monopolist.

Correct option 4. All of these statements are true.

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