Economics study guide - Economics Chapter 13, Antitrust and...

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Economics Chapter 13, Antitrust and Regulation Antitrust Policy is the term for the government policies and programs designed to control growth of monopoly and prevent firms from engaging in undesirable practices. Antitrust and Business Activities. The three law, Sherman, Clayton, and Federal Trade Commission Acts define the government’s approach to antitrust policy. Intended to limit the creation and behavior of trusts, and independent firms. Firms cannot get together to decide fixed prices, they cannot restrict competition, and cannot combine trusts if the firm would have too much of an influence on the market. Interpretation - Antitrust is the responsibility of the Federal Trade Commission and the Antitrust Division of the Department of Justice. Rule of Reason is used by the courts to judge firms’ actions Regulation Antitrust policy should level the playing field for everyone. When the competitive environment cannot be enhanced such as in the case of a monopoly, where conditions lead to a sole supplied regulation is used to ensure that price and output are more beneficial for consumers than the levels that the monopolist would set without government influence. Economic Regulation refers to prescribing of prices and output levels for both natural monopolies and industries that are not monopolies. It is specific, applying to a particular industry or line of business. Social Regulation refers to prescribed performance standards, and a variety of output and job standards that apply across several industries. Regulation of Monopoly Monopoly is inefficient, and perfect competition is efficient. They are regulated in order to behave more like perfectly competitive firms. If the objective of regulatory commission is to achieve allocative efficiency, then the commission must attempt to have the monopoly set a price equal to marginal cost. But setting it at marginal cost does not give enough profit to pay for the large costs. Fair State Return is what is done instead, which is a price that allows a monopoly firm to earn normal profit. They have price equal Average Total Costs (ATC). Deregulation and Privatization in the United States There became a problem that many regulated companies lacked incentives to keep costs under control and be responsive to consumer demands. Many of these companies have been deregulated. Privatization is another form of deregulation which is changing from a government run business to a privately owned and run business. Standard Assests which are acquired by a firm while regulated that have little or no value at deregulation Social Regulation There has been a lot of regulation growth since the Great Depression, most of which has been in the form of social regulation. SR is concerned with the conditions under which goods and services are produced and the impact of
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Economics study guide - Economics Chapter 13, Antitrust and...

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