Question 1

Predatory pricing interpretations are now well established, and new court rulings are unlikely to change them.

Accepted Answer

A) True 
 B)False

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

Which of the following gives the government the authority to take action in breaking up an existing monopoly?

Accepted Answer

A) Section 1 of the Sherman Act 
B) Section 2 of the Sherman Act 
C) The Clayton Act 
D) The Glass-Steagall Act 
E) The Federal Trade Commission Act 
A) Section 1 of the Sherman Act 
B) Section 2 of the Sherman Act 
C) The Clayton Act 
D) The Glass-Steagall Act 
E) The Federal Trade Commission Act

Question 4

A regulatory method that stipulates that the firm charge a price that equals average total cost is called

Accepted Answer

A) average total cost pricing. 
B) marginal cost pricing. 
C) incentive regulation. 
D) marginal-revenue-equals-marginal-cost pricing. 
E) average variable cost pricing. 
A) average total cost pricing. 
B) marginal cost pricing. 
C) incentive regulation. 
D) marginal-revenue-equals-marginal-cost pricing. 
E) average variable cost pricing.

Question 5

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 6

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 7

The antitrust case standard that holds that it is necessary only to show that an action occurred, not that there was intent or significant impact, is called the

Accepted Answer

A) rule of reason. 
B) antimonopoly rule. 
C) predatory pricing rule. 
D) per se rule. 
E) antidiscrimination. 
A) rule of reason. 
B) antimonopoly rule. 
C) predatory pricing rule. 
D) per se rule. 
E) antidiscrimination.

Question 8

Given that increased market power results in deadweight loss, should government policy be designed to inhibit firms from gaining market power?

Accepted Answer

Not always. The profits that go with mar

Question 9

Incentive regulation is sometimes made difficult by asymmetric information problems.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following markets has the highest Herfindahl-Hirschman index?

Accepted Answer

A) Eight firms of exactly the same size 
B) Three firms of widely differing sizes 
C) Three firms of exactly the same size 
D) Twenty firms of widely differing sizes 
E) Twenty firms of exactly the same size 
A) Eight firms of exactly the same size 
B) Three firms of widely differing sizes 
C) Three firms of exactly the same size 
D) Twenty firms of widely differing sizes 
E) Twenty firms of exactly the same size

Question 11

The main purpose of antitrust law is to promote competition and control monopoly power.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a low-price discount store competes with a high-price retail store that provides services to customers. One can view resale price maintenance as a means of

Accepted Answer

A) preventing the discount store from charging a lower price. 
B) preventing the retail store from changing its behavior. 
C) preventing the discount store from capturing the best customers. 
D) enabling the low-price discount store to sell in the high-price retail store market. 
E) eliminating the discount store. 
A) preventing the discount store from charging a lower price. 
B) preventing the retail store from changing its behavior. 
C) preventing the discount store from capturing the best customers. 
D) enabling the low-price discount store to sell in the high-price retail store market. 
E) eliminating the discount store.

Question 13

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 14

How do the FTC and the Justice Department use the 5-percent rule to define the market in which firms compete?

Accepted Answer

If a group of firms in a particular cate

Question 15

A 1,000-point change in the Herfindahl-Hirschman index corresponds roughly to a merger of two firms, each with a 7 percent share of the market.

Accepted Answer

A) True 
 B)False

Question 16

Under incentive regulation, a natural monopoly

Accepted Answer

A) can raise its price if its average total cost rises above its regulated price. 
B) cannot distribute some profits to a worker whose innovation lowered the firm's average total cost. 
C) must lower its price if its average total cost falls below its regulated price. 
D) would strive to achieve average total cost lower than the regulated price. 
E) can disregard sloppy work or less innovative management. 
A) can raise its price if its average total cost rises above its regulated price. 
B) cannot distribute some profits to a worker whose innovation lowered the firm's average total cost. 
C) must lower its price if its average total cost falls below its regulated price. 
D) would strive to achieve average total cost lower than the regulated price. 
E) can disregard sloppy work or less innovative management.

Question 17

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 18

Under incentive regulation, the regulated price is set equal to average total cost.

Accepted Answer

A) True 
 B)False

Question 19

In a natural monopoly, average total cost is less than marginal cost throughout the entire range of the market demand.

Accepted Answer

A) True 
 B)False

Question 20

In the past, the Interstate Commerce Commission (ICC) regulated the trucking industry by

Accepted Answer

A) putting a floor on the price that trucking companies could charge when shipping goods interstate. 
B) putting a ceiling on the price that trucking companies could charge when shipping goods intrastate. 
C) not allowing one trucking company to haul goods for another trucking company. 
D) limiting the regions that each trucking company could serve. 
E) preventing trucking companies from merging. 
A) putting a floor on the price that trucking companies could charge when shipping goods interstate. 
B) putting a ceiling on the price that trucking companies could charge when shipping goods intrastate. 
C) not allowing one trucking company to haul goods for another trucking company. 
D) limiting the regions that each trucking company could serve. 
E) preventing trucking companies from merging.

Exam 12: Antitrust Policy and Regulation

Predatory pricing interpretations are now well established, and new court rulings are unlikely to change them.

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

Which of the following gives the government the authority to take action in breaking up an existing monopoly?

A regulatory method that stipulates that the firm charge a price that equals average total cost is called

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

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

The antitrust case standard that holds that it is necessary only to show that an action occurred, not that there was intent or significant impact, is called the

Given that increased market power results in deadweight loss, should government policy be designed to inhibit firms from gaining market power?

Incentive regulation is sometimes made difficult by asymmetric information problems.

Which of the following markets has the highest Herfindahl-Hirschman index?

The main purpose of antitrust law is to promote competition and control monopoly power.

Suppose a low-price discount store competes with a high-price retail store that provides services to customers. One can view resale price maintenance as a means of

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

How do the FTC and the Justice Department use the 5-percent rule to define the market in which firms compete?

A 1,000-point change in the Herfindahl-Hirschman index corresponds roughly to a merger of two firms, each with a 7 percent share of the market.

Under incentive regulation, a natural monopoly

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.

Under incentive regulation, the regulated price is set equal to average total cost.

In a natural monopoly, average total cost is less than marginal cost throughout the entire range of the market demand.

In the past, the Interstate Commerce Commission (ICC) regulated the trucking industry by

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of 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

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

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