Answer to Question #266085 in Macroeconomics for damON

Question

    United States v. Microsoft Corporation was a noted American legal case in which the U.S. government accused Microsoft of illegally maintaining its monopoly. Explain why the government often steps in to prevent the creation of large monopolies. Explain by using concepts such as market power and market structures. Use less than 800 words.

Answer 1

Monopolies inevitably deplete society's economic resources in a variety of ways. As a result, governments restrict monopolies in order to benefit society more than they would if the monopolies maximized their earnings.

A monopoly must cut the price it costs clients in order to sell a larger amount. After the first output, a monopolist's marginal revenue is always smaller than the price of its good. Monopolies could raise prices above the competitive equilibrium if they are not regulated by the government. Allocation inefficiency and a decrease in consumer welfare would result.