Homework Answers
Solution: Assume an industry is currently a monopoly and the government breaks it up into a large number of small perfectly competitive firms Price will fall and industry output will increase
Explanation: In a monopoly market, the power of the market is entirely into the hands of a single seller or a single firm. In monopoly a single seller is available for a product and hence people have no choice but to purchase goods from him. Firms are price setters in a monopoly market and hence to earn profits supply is also restricted by the seller.
When the government breaks the monopoly market into large number of small perfectly competitive firms, the prices are according to the market prices and hence prices fall which are equal to other perfectly competitive firms. Firms in perfect competition are price takers. As prices are decreased demand in the market also increases as now more people will purchase the same good at lower prices. As a result the industry output also increases because a normal supply is also maintained in a perfectly competitive market and the supply is not restricted to earn profits like it is in monopoly market.
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to a large number of small perfectly competitive firms. e n perfectly competitive firms and industry...
QUESTION 6 Industry is a perfectly competitive industry. Assume that as a result of changes in...
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