Suppose that in a given industry, there are diseconomies of scale, so that larger firms generally have higher average costs than smaller firms. Should a regulator typically approve a merger between two large firms in this industry.
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No, because costs will increase and market power will increase, leading to less technical and allocative efficiency.
An unregulated natural monopoly will produce ______________ allocative efficienct.too little forIf a regulatory agency sets prices equal to AC, the regulated monopoly will earn ______________ and produce ________________.no economic profits; less than the allocatively efficient amount of output.Why would we want to allow a natural monopoly to exist? Or do we?We would because it can produce at a lower AC then if many small firms were producing.Consider the four-firm concentration ratio and mergers. If the concentration ratio greatly increases after a potential merger:the merger would be less likely to be approved.Consider the four-firm concentration ratio and merger. If the concentration ratio remains relatively low after a potential merger:the merger would be more likely to be approvedConsider the four-firm concentration and Herfindahl-Hirschman index (HHI). A key difference is that the HHI _______________ when assessing possible mergers.gives greater weight to the largest firmsWhat type of merger would result in the largest increase in the HHI?A large firm merging with a large firm.A natural monopoly has:very large economies of scale.Which of the following is most likely to be a natural monopoly?
a. An electric company.
b. A local community college.
c. A large commercial bank
d. A video game programming firm.a. An electric companyWhich of the following is most likely to be a natural monopoly?
a. A textbook publishing company.
b. A cable TV company.
c. A movie theater.
d. A soft drink company.b. A cable TV company.A natural monopoly characterized by:a downward sloping long run AC curve.The following graph represents a natural monopoly. The demand, MR, AC, and MC functions are shown. Points A, B, C, D, and E are labeled. What point represents the price-quantity combination chosen by an unregulated monopoly?BExamine the following graph. What point represents the price and quantity that result from the average cost regulation of this natural monopoly?CExamine the following graph. What point represents the price and quantity that result from MC regulation of this natural monopoly?D
