Question 1

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

Accepted Answer

A) MR = MC 
B) P = MC 
C) MC = quantity demanded 
D) P = AC 
E) MR = AC 
A) MR = MC 
B) P = MC 
C) MC = quantity demanded 
D) P = AC 
E) MR = AC D

Question 2

The Herfindahl index would be 5000 if the only two firms in an industry have equal market shares.

Accepted Answer

A) True 
 B)False  True

Question 3

Over time, regulatory machinery may shift toward the special interests of producers, who, in effect, "capture" the regulating agency.

Accepted Answer

A) True 
 B)False  True

Question 4

The Clayton Act of 1914

Accepted Answer

A) was too vaguely worded to reduce anticompetitive behavior significantly 
B) prohibited conspiracies in restraint of trade 
C) prohibited price discrimination that reduces competition and cannot be justified based on cost differences 
D) created the Federal Trade Commission 
E) prohibited firms from reducing prices too far 
A) was too vaguely worded to reduce anticompetitive behavior significantly 
B) prohibited conspiracies in restraint of trade 
C) prohibited price discrimination that reduces competition and cannot be justified based on cost differences 
D) created the Federal Trade Commission 
E) prohibited firms from reducing prices too far

Question 5

According to the special interest theory, the licensing of beauticians would be

Accepted Answer

A) desired by consumers in order to promote the public interest 
B) desired by beauticians in order to promote the public interest 
C) discouraged by all beauty salons, large or small 
D) desired by some beauticians in order to restrict entry into their profession 
E) done strictly at the initiative of the government 
A) desired by consumers in order to promote the public interest 
B) desired by beauticians in order to promote the public interest 
C) discouraged by all beauty salons, large or small 
D) desired by some beauticians in order to restrict entry into their profession 
E) done strictly at the initiative of the government

Question 6

In a natural monopoly, throughout the range of market demand,

Accepted Answer

A) marginal cost exceeds average cost and therefore pulls average cost upward 
B) average cost exceeds marginal cost and therefore pulls marginal cost upward 
C) marginal cost is below average cost and therefore pulls average cost downward 
D) average cost is equal to marginal cost 
E) there are diseconomies of scale 
A) marginal cost exceeds average cost and therefore pulls average cost upward 
B) average cost exceeds marginal cost and therefore pulls marginal cost upward 
C) marginal cost is below average cost and therefore pulls average cost downward 
D) average cost is equal to marginal cost 
E) there are diseconomies of scale

Question 7

Antitrust laws attempt to promote competition by controlling

Accepted Answer

A) market structure only 
B) market conduct only 
C) market structure and performance 
D) market structure and conduct 
E) market structure, conduct, and performance 
A) market structure only 
B) market conduct only 
C) market structure and performance 
D) market structure and conduct 
E) market structure, conduct, and performance

Question 8

Antitrust policy is designed to

Accepted Answer

A) improve health and safety in products and in working conditions 
B) regulate the firms in industries where "cut-throat" competition is potentially damaging 
C) create monopolies by forcing competitive firms to merge 
D) control price and output in industries where monopoly is desirable 
E) promote competition and reduce anticompetitive behavior 
A) improve health and safety in products and in working conditions 
B) regulate the firms in industries where "cut-throat" competition is potentially damaging 
C) create monopolies by forcing competitive firms to merge 
D) control price and output in industries where monopoly is desirable 
E) promote competition and reduce anticompetitive behavior

Question 9

Which of the following is true when regulators require a natural monopolist to set price equal to marginal cost?

Accepted Answer

A) This policy results in a less than socially optimal allocation of resources. 
B) The marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit. 
C) The monopolist will face recurring losses unless a subsidy is provided. 
D) The monopolist will earn a normal profit. 
E) The monopolist will earn more than a fair return. 
A) This policy results in a less than socially optimal allocation of resources. 
B) The marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit. 
C) The monopolist will face recurring losses unless a subsidy is provided. 
D) The monopolist will earn a normal profit. 
E) The monopolist will earn more than a fair return.

Question 10

Producers play a disproportionately large role in influencing public regulation because they have a strong interest in matters that affect their specialized source of income.

Accepted Answer

A) True 
 B)False

Question 11

If a firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is a

Accepted Answer

A) local monopoly 
B) resource monopoly 
C) monopsony 
D) output monopoly 
E) natural monopoly 
A) local monopoly 
B) resource monopoly 
C) monopsony 
D) output monopoly 
E) natural monopoly

Question 12

A physicians' professional association supports legislation seeking higher quality medical care.According to the special interest theory of regulation, who likely will benefit most from this legislation?

Accepted Answer

A) Government, through decreased regulation of physician quality. 
B) Patients, through reduced prices for medical care. 
C) Physicians, through increased prices for medical care. 
D) Hospitals, through decreased for physicians' services. 
E) Government, since higher quality health care is clearly in the public interest. 
A) Government, through decreased regulation of physician quality. 
B) Patients, through reduced prices for medical care. 
C) Physicians, through increased prices for medical care. 
D) Hospitals, through decreased for physicians' services. 
E) Government, since higher quality health care is clearly in the public interest.

Question 13

Exhibit 15-5   The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Accepted Answer

A) $15 
B) $20 
C) $25 
D) $30 
E) $35 
A) $15 
B) $20 
C) $25 
D) $30 
E) $35

Question 14

Antitrust policy has no relationship to socially desirable market performance.

Accepted Answer

A) True 
 B)False

Question 15

To allow a public utility (which is a natural monopoly)to earn only a normal profit, the government should

Accepted Answer

A) do all of the following 
B) set price equal to average cost 
C) equate marginal cost and average cost 
D) set marginal cost equal to marginal revenue 
E) set price equal to marginal cost 
A) do all of the following 
B) set price equal to average cost 
C) equate marginal cost and average cost 
D) set marginal cost equal to marginal revenue 
E) set price equal to marginal cost

Question 16

Exhibit 15-4   If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to

Accepted Answer

A) a 
B) b 
C) c 
D) f 
E) e 
A) a 
B) b 
C) c 
D) f 
E) e

Question 17

Which of the following would not violate the Sherman Antitrust Act if the rule of reason was used to interpret the act?

Accepted Answer

A) conspiring to monopolize 
B) formation of a trust company 
C) conspiring to restrain trade 
D) a single firm supplying all of a market with no close substitutes and some barriers to entry 
E) attempting to restrain trade with a foreign nation 
A) conspiring to monopolize 
B) formation of a trust company 
C) conspiring to restrain trade 
D) a single firm supplying all of a market with no close substitutes and some barriers to entry 
E) attempting to restrain trade with a foreign nation

Question 18

Economic regulation is government policy designed to

Accepted Answer

A) improve health and safety in products and in working conditions 
B) prevent firms from monopolizing or developing a cartel in existing competitive markets 
C) eliminate existing monopolies by breaking them apart into many smaller firms 
D) create monopolies by forcing competitive firms to merge 
E) control price and output in industries where monopoly is desirable 
A) improve health and safety in products and in working conditions 
B) prevent firms from monopolizing or developing a cartel in existing competitive markets 
C) eliminate existing monopolies by breaking them apart into many smaller firms 
D) create monopolies by forcing competitive firms to merge 
E) control price and output in industries where monopoly is desirable

Question 19

If those accused of antitrust violations sign a consent decree, they have

Accepted Answer

A) agreed to stop doing what they are accused of doing 
B) admitted to guilt 
C) agreed to a court trial 
D) contested the charges against them 
E) charged the government with wrongdoing 
A) agreed to stop doing what they are accused of doing 
B) admitted to guilt 
C) agreed to a court trial 
D) contested the charges against them 
E) charged the government with wrongdoing

Question 20

Exhibit 15-5   Consider the natural monopoly depicted in exhibit 15-5.What price should regulators set in order for the natural monopolist to at least break-even?

Accepted Answer

A) $5 
B) $10 
C) $15 
D) $20 
E) $25 
A) $5 
B) $10 
C) $15 
D) $20 
E) $25

Exam 15: Economic Regulation and Antitrust Policy

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

The Herfindahl index would be 5000 if the only two firms in an industry have equal market shares.

Over time, regulatory machinery may shift toward the special interests of producers, who, in effect, "capture" the regulating agency.

The Clayton Act of 1914

According to the special interest theory, the licensing of beauticians would be

In a natural monopoly, throughout the range of market demand,

Antitrust laws attempt to promote competition by controlling

Antitrust policy is designed to

Which of the following is true when regulators require a natural monopolist to set price equal to marginal cost?

Producers play a disproportionately large role in influencing public regulation because they have a strong interest in matters that affect their specialized source of income.

If a firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is a

A physicians' professional association supports legislation seeking higher quality medical care.According to the special interest theory of regulation, who likely will benefit most from this legislation?

Exhibit 15-5 The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Antitrust policy has no relationship to socially desirable market performance.

To allow a public utility (which is a natural monopoly)to earn only a normal profit, the government should

Exhibit 15-4 If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to

Which of the following would not violate the Sherman Antitrust Act if the rule of reason was used to interpret the act?

Economic regulation is government policy designed to

If those accused of antitrust violations sign a consent decree, they have

Exhibit 15-5 Consider the natural monopoly depicted in exhibit 15-5.What price should regulators set in order for the natural monopolist to at least break-even?

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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