Question 1

In a natural monopoly, marginal cost will

Accepted Answer

A) respond to average cost. 
B) fall below average cost when the firm produces the last unit of output. 
C) rise above average cost when the firm produces the last unit of output. 
D) equal average cost when the firm produces the last unit of output. 
E) sometimes fall below and sometimes rise above average cost when the firm produces the last unit of output. 
A) respond to average cost. 
B) fall below average cost when the firm produces the last unit of output. 
C) rise above average cost when the firm produces the last unit of output. 
D) equal average cost when the firm produces the last unit of output. 
E) sometimes fall below and sometimes rise above average cost when the firm produces the last unit of output.

Question 2

Deregulation in the 1980s did not affect which of the following industries?

Accepted Answer

A) Airlines 
B) Electric utilities 
C) Telecommunications 
D) Trucking 
E) Banking 
A) Airlines 
B) Electric utilities 
C) Telecommunications 
D) Trucking 
E) Banking

Question 3

Suppose that all the auto repair shops in an isolated town agree to increase the price of their services. Is this illegal? Why?

Accepted Answer

This is an example of price-fixing, whic

Question 4

Draw a diagram for a firm in an industry in which the fixed costs are high and the marginal cost is low and constant.

Accepted Answer

In this industry, th

Question 5

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 6

The U.S. government withdrew its antitrust case against IBM in 1982 because

Accepted Answer

A) the per se standard did not apply to the case. 
B) IBM agreed to cooperate. 
C) there was no proof that IBM's mainframe computer profits cross-subsidized its personal computer activity. 
D) the Supreme Court redefined the rule of reason to make it more difficult to prove guilt. 
E) competition in computer markets increased rapidly after the case began. 
A) the per se standard did not apply to the case. 
B) IBM agreed to cooperate. 
C) there was no proof that IBM's mainframe computer profits cross-subsidized its personal computer activity. 
D) the Supreme Court redefined the rule of reason to make it more difficult to prove guilt. 
E) competition in computer markets increased rapidly after the case began.

Question 7

Whether cable television is a natural monopoly is controversial among economists.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Which of the following gives the government the authority to take action against price fixing?

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 10

Which two products most likely will have market structures that are natural monopolies?

Accepted Answer

A) Computers and natural gas 
B) Automobiles and cable television 
C) Groceries and toys 
D) Airplanes and ships 
E) Water and electricity 
A) Computers and natural gas 
B) Automobiles and cable television 
C) Groceries and toys 
D) Airplanes and ships 
E) Water and electricity

Question 11

Average total cost pricing gives the firm being regulated no incentive to cut costs.

Accepted Answer

A) True 
 B)False

Question 12

To allow a natural monopoly to earn only a normal profit, the government should set

Accepted Answer

A) price equal to marginal cost. 
B) price equal to average total cost. 
C) price equal to average fixed cost. 
D) average revenue equal to marginal cost. 
E) marginal revenue equal to marginal cost. 
A) price equal to marginal cost. 
B) price equal to average total cost. 
C) price equal to average fixed cost. 
D) average revenue equal to marginal cost. 
E) marginal revenue equal to marginal cost.

Question 13

A vertical merger has a smaller impact on market concentration than does a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 14

Most economists agree that resale price maintenance reduces economic efficiency.

Accepted Answer

A) True 
 B)False

Question 15

A serious problem with average total cost pricing is that

Accepted Answer

A) the deadweight loss to society is greater than with unregulated monopoly pricing. 
B) the firm has no incentive to earn a profit. 
C) the deadweight loss to society is the same as with unregulated monopoly pricing. 
D) inefficiencies in the firm will not be tolerated. 
E) the firm has no incentive to reduce costs. 
A) the deadweight loss to society is greater than with unregulated monopoly pricing. 
B) the firm has no incentive to earn a profit. 
C) the deadweight loss to society is the same as with unregulated monopoly pricing. 
D) inefficiencies in the firm will not be tolerated. 
E) the firm has no incentive to reduce costs.

Question 16

Price-fixing arrangements can take the form of an effort to restrict trade in one horizontal market.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Since the 1980s, U.S. industries have become more regulated.

Accepted Answer

A) True 
 B)False

Question 19

The type of merger that will most likely reduce market competition is a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 20

Trucking rates rose after the Interstate Commerce Commission (ICC) stopped regulating trucking in the 1970s and early 1980s.

Accepted Answer

A) True 
 B)False

Exam 12: Antitrust Policy and Regulation

In a natural monopoly, marginal cost will

Deregulation in the 1980s did not affect which of the following industries?

Suppose that all the auto repair shops in an isolated town agree to increase the price of their services. Is this illegal? Why?

Draw a diagram for a firm in an industry in which the fixed costs are high and the marginal cost is low and constant.

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

The U.S. government withdrew its antitrust case against IBM in 1982 because

Whether cable television is a natural monopoly is controversial among economists.

The Herfindahl-Hirschman index tends to be lower when

Which of the following gives the government the authority to take action against price fixing?

Which two products most likely will have market structures that are natural monopolies?

Average total cost pricing gives the firm being regulated no incentive to cut costs.

To allow a natural monopoly to earn only a normal profit, the government should set

A vertical merger has a smaller impact on market concentration than does a horizontal merger.

Most economists agree that resale price maintenance reduces economic efficiency.

A serious problem with average total cost pricing is that

Price-fixing arrangements can take the form of an effort to restrict trade in one horizontal market.

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

Since the 1980s, U.S. industries have become more regulated.

The type of merger that will most likely reduce market competition is a horizontal merger.

Trucking rates rose after the Interstate Commerce Commission (ICC) stopped regulating trucking in the 1970s and early 1980s.

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

International Finance

Filters