Author Question: Describe the basic motives for businesses to merge. What will be an ideal ... (Read 34 times)

jwb375

  • Hero Member
  • *****
  • Posts: 540
Describe the basic motives for businesses to merge.
 
  What will be an ideal response?

Question 2

A function of government is to regulate natural monopolies. Explain what is a natural monopoly and why it requires government regulation.
 
  What will be an ideal response?



s.meritte

  • Sr. Member
  • ****
  • Posts: 306
Answer to Question 1

Take advantage of synergies in operations: increase overall sales, reduce operating costs, lower costs of capital. Mutual acquisition of skilled managers, as each of the businesses may have skilled personnel that the other doesn't possess. Take advantage of favorable tax consequences. Increase market power so as to enhance economic profits. Diversify to reduce business risk. Increase the compensation of top executives, although this often is at the expense of stockholders and other employees.

Answer to Question 2

Natural monopolies occur when there are large cost economies of scale such that one producer can operate in the declining range of average cost while meeting the entire market demand for a product. In these situations it is more economical to have only one producer of the product, since production costs will be lower and the product can be profitably sold at lower prices than if there were several or more producers. Thus, the economy would benefit from having only one producer, but this would permit the producer to earn monopoly profits from lack of competition. Therefore, government should permit only one producer but regulate its operations, including selling prices, so that it doesn't exploit its monopoly position.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

There are approximately 3 million unintended pregnancies in the United States each year.

Did you know?

Cocaine was isolated in 1860 and first used as a local anesthetic in 1884. Its first clinical use was by Sigmund Freud to wean a patient from morphine addiction. The fictional character Sherlock Holmes was supposed to be addicted to cocaine by injection.

Did you know?

As many as 20% of Americans have been infected by the fungus known as Histoplasmosis. While most people are asymptomatic or only have slight symptoms, infection can progress to a rapid and potentially fatal superinfection.

Did you know?

To maintain good kidney function, you should drink at least 3 quarts of water daily. Water dilutes urine and helps prevent concentrations of salts and minerals that can lead to kidney stone formation. Chronic dehydration is a major contributor to the development of kidney stones.

Did you know?

Prostaglandins were first isolated from human semen in Sweden in the 1930s. They were so named because the researcher thought that they came from the prostate gland. In fact, prostaglandins exist and are synthesized in almost every cell of the body.

For a complete list of videos, visit our video library