Learning objectives
Explain the purpose of antitrust policy in preventing mergers and breaking up firms with excessive market power
Analyze the regulation of a natural monopoly, comparing the socially optimal price (P = MC, which may require a subsidy) with the fair-return price (P = ATC, zero economic profit)
Compare the effects of a per-unit tax or subsidy (which shifts marginal cost and changes output) with a lump-sum tax or subsidy (which changes profit but not short-run output) on firms in different market structures
Analyze how a price ceiling imposed on a monopoly can increase output and reduce deadweight loss
Evaluate whether an intervention improves or worsens efficiency and how its effects differ between perfectly and imperfectly competitive markets
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