Explain How Antitrust Laws Affect Firms

The paper has been revised.

Week Three Assignment
Jesus Dorado
DeVry University
November 15, 2014

Many have asked how antitrust laws affect firms. Antitrust laws affect firms in many ways. Antitrust laws are guidelines that firms have to abide by. If firms do not abide by these guidelines, they can get themselves in serious trouble. McDonalds is a firm that has been recently investigated for antitrust behavior. In this case, there were pecuniary costs associated with the antitrust behavior. The specific antitrust act under which McDonalds was investigated for was violation of S1 of the Sherman Act, 15 U.S.C. S1. Monopolies and oligopolies are not always bad for society, but they are not perfect either. There have also been situations

“Good monopolies come in several forms. The first is natural monopoly. When the average cost of production falls as a factory grows larger, then economies of scale are present. Natural monopoly exists when economies of scale encourage production by a single producer. A commonly cited example of natural monopoly is your local electrical utility. A feature of power plants that encourages natural monopoly is that as the size of a power plant increases, the cost per kilowatt hour of electricity falls. You might own a small electrical generator. Imagine the cost of operating the generator or multiple small generators just to meet your home's electrical needs. Now imagine the cost of every household in a city running on multiple portable generators. The total fixed cost of generators for the community would be quite high and the variable cost of running gas or diesel generators would be astronomical. Compare that situation with the one that most likely exists in your city. Instead of multitudes of portable generators, a few large coal-fired power plants are able to generate electricity for the entire city at a much lower total cost. Remember that utilities are monopolies. What keeps the utility from charging a monopoly price for electricity? Government regulates the prices that utilities are able to charge their customers for electricity. By controlling prices, government encourages low-cost production

“Take the case of public utilities, such as water and electricity services. Firms in such industries are called natural monopolies because they are inherently more efficient than when there are many firms providing such services. Imagine several firms, each setting up its own pipelines or electrical wires throughout the metro: all utilities and infrastructure will needlessly double and lead to inefficiency. All these give rise to the need for natural monopolies. Society is better off restricting the market to one firm because by producing more it is able to reduce its costs, something many firms cannot do by themselves.” ("Are monopolies always," 2008). I agree that restricting the market to one firm is good for society because the price of water will reduce, if one firm is in charge of production. Instead of multiple firms selling water at a higher price, one firm can be in charge of production for the area, while keeping prices low. This benefits society because now consumers can spend their extra money on other