Question

There are four basic solutions to handling monopolies:

1. Break it up (through anti-trust laws);
2. Regulate it;
3. Take it over; or
4. Leave it alone.

Of these four solutions, which one is superior? Why? If your answer is that "it depends," under what conditions would you favor each possibility? Also, are there any redeeming qualities of monopolies? What are they?

Answer 1

See the explanation for the answers.

Step-by-step explanation:

1. "Regulate it" is superior because anti trust makes it open to competition and the firm no longer remains a monopoly.

2. A regulated monopoly lower the price it charges from consumers which benefits the consumers because their consumer surplus increases. A regulated monopoly also offers better quality products.

3. Yes, there are redeeming qualities of monopolies.

Advantages of monopoly-

(a) The profits that the monopolist earns can be invested in R and D.

(b) Monopolies can practice price discrimination which can benefit weaker sections of the society.

(c) Monopolies can invest in latest technology which increases productivity and total output of a country.

(d) The government generates revenue from taxing the monopoly firm.