Question

Suppose that a telecommunications company controls a large share of the national market. The government believes that the economies of scale in this industry are not significant, and, therefore, multiple smaller firms would be able to provide lower prices. Which of the following policy options might most effectively enable the government to achieve its objectives in this situation?Do nothing at all.Regulate the firm's pricing behavior.Use antitrust laws to increase competition.Turn the company into a public enterprise.

Answer 1

Answer: Use antitrust laws to increase competition.

Explanation:

If the aim of the Government really is to.improve competition then they should use Anti-trust laws to increase competition.

This question is rooted in the concept of Capitalism and focuses on its good side which is that competition is good.

With such a law coming into effect, the large market share of the big company can be redistributed to the smaller firms which would enable competition amongst them and the large company as well. Competition at base level is good for the Economy for two main reasons;

1. It will make companies more efficient as they strive to better than each other. They'll produce better products and be more cost effective.

2. The citizens and consumers gain better service at cheaper costs because again, the companies would be competing amongst themselves and introducing newer and better ways to capture market share.

Answer 2

Answer:

Turn the company into a public enterprise.

Explanation:

Base on the scenario been described in the question, the policy options might most effectively enable the government to achieve its objectives in this situation is turn the company into a public enterprise.

If the government belief that the economies of scale in this industry are not significant, and therefore, multiple smaller firms would be able to provide lower prices is true, it would be profitable for the market, When a natural monopoly, such as an electric utility, is forced to sell itself to a public institution, the private monopoly will become a public enterprise. Such a policy option, which might be chosen by a government that views electricity as a public good, is generally the European approach to providing utilities. A potential drawback of this approach is that government managers may have little incentive to keep costs down