Which of the following statements is not correct?

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BlackTom AI · Accepted Answer

To analyze the statements, I will consider what each claim implies about government action and natural monopolies.
Option a: 'The government may use antitrust laws to break up an existing company to improve competition.' This is a standard, valid use of antitrust policy in many contexts. Breaking up a firm to preserve or enhance competition is a known tool when market power undermines welfare, so this statement is correct in principle.
Option b: 'Sometimes the best strategy is for the government to do nothing about monopoly inefficiency because the "fix" may be worse than the problem.' This reflects a real-world consideration known as the preference for minimally disruptive interventions. In some cases, regulation or breakup may cause more inefficiency or unintended consequences than the problem itself, so this statement is also correct in acknowledging trade-offs.
Option c: 'The government may break up a natural monopoly to lower the price charged to customers.' This is the tricky one. Natural monopolies arise because a single provider can supply the entire market at a lower cost than multiple competing firms due to economies of scale. Breaking up a natural monopoly would typically raise costs and reduce efficiency, making it unlikely to lower prices in general. Regulatory avenues (like price regulation or service quality standards) are usually preferred over breakup. Therefore, this statement is not correct in standard economic understanding.
Option d: 'Economists usually prefer private ownership to public ownership of natural monopolies.' Most traditional analyses favor private ownership combined with regulation (to control prices and ensure service) rather than public ownership, so this statement is correct in the common view.
In summary, option c stands out as not correct because breaking up a natural monopoly tends to undermine the very cost advantages that justify its existence, and price reductions are not the typical outcome of partitioning a natural monopoly. The other statements align with conventional economic reasoning about antitrust actions, regulatory trade-offs, and ownership preferences.

ECB1101 - S1 2025 Online Quiz 10

Which of the following statements is not correct?

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