Principles of Microeconomics
11th Edition
ISBN: 9780133024166
Author: Karl E. Case
Publisher: PEARSON
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Question
Chapter 12, Problem 1P
To determine
Breaking up
Expert Solution & Answer
Explanation of Solution
The statement is disagreed because it is possible for the breakup to be a potential Pareto improvement even if it makes the shareholders worse off. Efficient change inculcates the changes that made some shareholders better off and others worse off but in which those who gain receive benefits that are greater than the costs imposed on the losers. This implies that the breakup will be an efficient change if the consumers will gain more than the shareholders lose.
Economics Concept Introduction
Pareto-efficiency: Pareto efficiency is an optimal economic state where the resource allocation is in such a way that it makes at least one person better off without making anyone worse off.
Monopoly: Monopoly is a market structure where there is only one seller of a good or service that does not have a close substitute.
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Students have asked these similar questions
Q1
In many countries, the government chooses to "internalize" the monopoly by owning
monopoly providers of goods and services. Monopoly is one of the market structures in
Malaysia. It is characterized by the ability of one seller to gain high profits. In a place where
a monopoly operates, it is hard for other firms to start. An example of monopolies Malaysia
GLCS are Telekom Malaysia, TNB and etc. (In some cases, these firms are "nationalized,"
and the government actually buys or confiscates firms that operate in monopoly markets).
(a)
Explain TWO (2) advantages and disadvantages of such an approach above to
ensure that the "best interest of society" is promoted in these monopoly markets.
(b)
Economists however would prefer a private ownership of monopoly rather than a
public ownership of monopoly.
The Clayton Act of 1914 classifies several business practices as illegal, including price discrimination and tying contracts, if they "substantially lessen competition or tend to create a monopoly."
The Clayton Act of 1914 is an example of which of the following?
Price regulations or Antitrust laws
The three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.
Chapter 12 Solutions
Principles of Microeconomics
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