Question 1

In considering whether to regulate a monopoly, regulators should consider the tradeoff between

Accepted Answer

A)  the benefits to other industries and the costs to taxpayers. 
B)  the cost of monitoring the firm and the increase in government tax revenues. 
C)  deadweight loss and government tax revenues. 
D)  profit margin and market prices. 
E)  market power and efficiency. 
A)  the benefits to other industries and the costs to taxpayers. 
B)  the cost of monitoring the firm and the increase in government tax revenues. 
C)  deadweight loss and government tax revenues. 
D)  profit margin and market prices. 
E)  market power and efficiency.

Question 2

A situation in which firms conspire to set prices for goods sold in the same market is called

Accepted Answer

A)  a horizontal merger. 
B)  price fixing. 
C)  resale price maintenance. 
D)  a vertical restraint. 
E)  artificial price control. 
A)  a horizontal merger. 
B)  price fixing. 
C)  resale price maintenance. 
D)  a vertical restraint. 
E)  artificial price control.

Question 3

Suppose that within an industry, firm A has 50 percent market share, firm B has 30 percent market share, and firm C has 2 percent market share. Which of the following is not likely to be challenged by the Federal Trade Commission?

Accepted Answer

A)  A merger between firms A and B 
B)  A merger between firms A and C 
C)  A merger between firms B and C 
D)  A merger of firms A, B, and C 
E)  Any merger among the three firms is likely to be challenged. 
A)  A merger between firms A and B 
B)  A merger between firms A and C 
C)  A merger between firms B and C 
D)  A merger of firms A, B, and C 
E)  Any merger among the three firms is likely to be challenged.

Question 4

Under incentive regulation,

Accepted Answer

A)  a firm cannot make a loss. 
B)  the regulated price is only imperfectly related to average total cost. 
C)  the firm has an incentive to raise revenue. 
D)  the regulated price is directly related to average variable cost. 
E)  if a firm does poorly, it will get regulatory relief. 
A)  a firm cannot make a loss. 
B)  the regulated price is only imperfectly related to average total cost. 
C)  the firm has an incentive to raise revenue. 
D)  the regulated price is directly related to average variable cost. 
E)  if a firm does poorly, it will get regulatory relief.

Question 5

A regulatory authority might require a monopoly to use marginal cost pricing because marginal cost pricing

Accepted Answer

A)  lowers but does not eliminate deadweight loss to society. 
B)  does not change deadweight loss to society. 
C)  eliminates any deadweight loss to society. 
D)  minimizes the total cost of a natural monopoly. 
E)  increases deadweight loss to society. 
A)  lowers but does not eliminate deadweight loss to society. 
B)  does not change deadweight loss to society. 
C)  eliminates any deadweight loss to society. 
D)  minimizes the total cost of a natural monopoly. 
E)  increases deadweight loss to society.

Question 6

An industry with a high degree of concentration may in fact be acting competitively because of the threat of new firms coming into the business.

Accepted Answer

A) True 
 B)False

Question 7

Economists who complain about airline deregulation say that

Accepted Answer

A)  there is too much competition in large regional airline hubs. 
B)  fares have increased on all major routes in the country. 
C)  it has reduced competition between St. Louis and Kansas City. 
D)  rural areas no longer receive the service they previously received. 
E)  the increased number of planes in the sky is unsafe. 
A)  there is too much competition in large regional airline hubs. 
B)  fares have increased on all major routes in the country. 
C)  it has reduced competition between St. Louis and Kansas City. 
D)  rural areas no longer receive the service they previously received. 
E)  the increased number of planes in the sky is unsafe.

Question 8

The Herfindahl-Hirschman index increases with a narrower market definition.

Accepted Answer

A) True 
 B)False

Question 9

The Interstate Commerce Commission (ICC) began to stop regulating trucking in the 1990s.

Accepted Answer

A) True 
 B)False

Question 10

The problem with a regulatory authority forcing a natural monopoly to use marginal cost pricing is that the natural monopoly would

Accepted Answer

A)  not be capable of supplying all the quantity that buyers would take off the market. 
B)  only break even. 
C)  earn above-normal profits. 
D)  operate at a loss. 
E)  price too high. 
A)  not be capable of supplying all the quantity that buyers would take off the market. 
B)  only break even. 
C)  earn above-normal profits. 
D)  operate at a loss. 
E)  price too high.

Question 11

Restraints on trade may do all the following except

Accepted Answer

A)  decrease the quantity produced. 
B)  decrease profits. 
C)  cause a deadweight loss. 
D)  raise prices. 
E)  limit other firms' access to a market. 
A)  decrease the quantity produced. 
B)  decrease profits. 
C)  cause a deadweight loss. 
D)  raise prices. 
E)  limit other firms' access to a market.

Question 12

After the increased regulation of the cable industry in 1993, many cable systems were allowed to raise prices. Give some possible explanations for this situation. If the provision of cable TV is not a natural monopoly, what could be expected regarding the number of firms and the profits of existing firms if the government deregulates?

Accepted Answer

Some explanations for increased cable pr

Question 13

The Herfindahl-Hirschman index rises as concentration in an industry falls.

Accepted Answer

A) True 
 B)False

Question 14

Section 2 of the Sherman Antitrust Act is being used to sue companies for predatory pricing. What is predatory pricing? Why is prosecuting predatory pricing part of competition policy?

Accepted Answer

Predatory pricing is the situation in wh

Question 15

When a firm's average total cost curve is downward-sloping,

Accepted Answer

A)  one firm can charge a higher price than multiple firms. 
B)  one firm can always produce more cheaply than multiple firms. 
C)  multiple firms in a market can charge a lower price than one firm. 
D)  a larger number of firms in a market is better than a smaller number of firms. 
E)  multiple firms can produce more cheaply than one firm. 
A)  one firm can charge a higher price than multiple firms. 
B)  one firm can always produce more cheaply than multiple firms. 
C)  multiple firms in a market can charge a lower price than one firm. 
D)  a larger number of firms in a market is better than a smaller number of firms. 
E)  multiple firms can produce more cheaply than one firm.

Question 16

The Justice Department and Federal Trade Commission use the Herfindahl-Hirschman index because it indicates how likely it is that, after a merger, firms in an industry will

Accepted Answer

A)  have enough market power to raise prices well above marginal cost. 
B)  have enough market power to use predatory pricing. 
C)  consider setting prices jointly. 
D)  increase output. 
E)  increase economic efficiency. 
A)  have enough market power to raise prices well above marginal cost. 
B)  have enough market power to use predatory pricing. 
C)  consider setting prices jointly. 
D)  increase output. 
E)  increase economic efficiency.

Question 17

When two or more firms conspire to fix prices, they do something

Accepted Answer

A)  anticompetitive but legal. 
B)  competitive but illegal. 
C)  illegal and anticompetitive. 
D)  legal and competitive. 
E)  that increases profits of major producers in the market. 
A)  anticompetitive but legal. 
B)  competitive but illegal. 
C)  illegal and anticompetitive. 
D)  legal and competitive. 
E)  that increases profits of major producers in the market.

Question 18

The Herfindahl-Hirschman index tends to be lower when

Accepted Answer

A)  one firm has 81 percent market share and all others have 1 percent each. 
B)  there are more firms in the industry. 
C)  the shares of each firm are more unequal. 
D)  the four largest firms control over 80 percent of the market share. 
E)  one or two firms have a large market share. 
A)  one firm has 81 percent market share and all others have 1 percent each. 
B)  there are more firms in the industry. 
C)  the shares of each firm are more unequal. 
D)  the four largest firms control over 80 percent of the market share. 
E)  one or two firms have a large market share.

Question 19

When regulators become captives of industry, they end up adopting policies that benefit consumers at the expense of producers.

Accepted Answer

A) True 
 B)False

Question 20

A merger of firms with low price-cost margins is less likely to be challenged by the Federal Trade Commission.

Accepted Answer

A) True 
 B)False

In considering whether to regulate a monopoly, regulators should consider the tradeoff between

A situation in which firms conspire to set prices for goods sold in the same market is called

Suppose that within an industry, firm A has 50 percent market share, firm B has 30 percent market share, and firm C has 2 percent market share. Which of the following is not likely to be challenged by the Federal Trade Commission?

Under incentive regulation,

A regulatory authority might require a monopoly to use marginal cost pricing because marginal cost pricing

An industry with a high degree of concentration may in fact be acting competitively because of the threat of new firms coming into the business.

Economists who complain about airline deregulation say that

The Herfindahl-Hirschman index increases with a narrower market definition.

The Interstate Commerce Commission (ICC) began to stop regulating trucking in the 1990s.

The problem with a regulatory authority forcing a natural monopoly to use marginal cost pricing is that the natural monopoly would

Restraints on trade may do all the following except

The Herfindahl-Hirschman index rises as concentration in an industry falls.

Section 2 of the Sherman Antitrust Act is being used to sue companies for predatory pricing. What is predatory pricing? Why is prosecuting predatory pricing part of competition policy?

When a firm's average total cost curve is downward-sloping,

The Justice Department and Federal Trade Commission use the Herfindahl-Hirschman index because it indicates how likely it is that, after a merger, firms in an industry will

When two or more firms conspire to fix prices, they do something

The Herfindahl-Hirschman index tends to be lower when

When regulators become captives of industry, they end up adopting policies that benefit consumers at the expense of producers.

A merger of firms with low price-cost margins is less likely to be challenged by the Federal Trade Commission.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters

Exam 12: Antitrust Policy and Regulation

In considering whether to regulate a monopoly, regulators should consider the tradeoff between

A situation in which firms conspire to set prices for goods sold in the same market is called

Suppose that within an industry, firm A has 50 percent market share, firm B has 30 percent market share, and firm C has 2 percent market share. Which of the following is not likely to be challenged by the Federal Trade Commission?

Under incentive regulation,

A regulatory authority might require a monopoly to use marginal cost pricing because marginal cost pricing

An industry with a high degree of concentration may in fact be acting competitively because of the threat of new firms coming into the business.

Economists who complain about airline deregulation say that

The Herfindahl-Hirschman index increases with a narrower market definition.

The Interstate Commerce Commission (ICC) began to stop regulating trucking in the 1990s.

The problem with a regulatory authority forcing a natural monopoly to use marginal cost pricing is that the natural monopoly would

Restraints on trade may do all the following except

The Herfindahl-Hirschman index rises as concentration in an industry falls.

Section 2 of the Sherman Antitrust Act is being used to sue companies for predatory pricing. What is predatory pricing? Why is prosecuting predatory pricing part of competition policy?

When a firm's average total cost curve is downward-sloping,

The Justice Department and Federal Trade Commission use the Herfindahl-Hirschman index because it indicates how likely it is that, after a merger, firms in an industry will

When two or more firms conspire to fix prices, they do something

The Herfindahl-Hirschman index tends to be lower when

When regulators become captives of industry, they end up adopting policies that benefit consumers at the expense of producers.

A merger of firms with low price-cost margins is less likely to be challenged by the Federal Trade Commission.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters