The Department of Justice has challenged the merger of two firms, and the case has ended up in the Supreme Court. The two firms argue that they will not use their monopoly power to raise prices or to cut output. Under what judicial standard would their merger be allowed, and under what judicial standard would their merger be disallowed?
The merger would be allowed under the rule of reason, which says that a long as a firm behaves reasonably, its size does not matter. The merger would be disallowed under the per se standard, which says that having a monopoly position is undesirable, no matter how the firm behaves.
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At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because
A) diminishing returns apply in the short run. B) returns to scale only exist in the long run. C) opportunity costs are taken into account in the short run. D) there are at least as many possibilities for substitution between factors of production in the long run as in the short run. E) none of the above
With average cost pricing, the monopolist
A) earns no accounting profit. B) produces where P = MC. C) earns a normal rate of return for its shareholders. D) does not cover opportunity costs.