Question 1

-In the above figure, which of the following statements is FALSE if the firm is operating at output level Q2?

Accepted Answer

A) The output is equivalent to an unregulated monopolist. 
B) Economic profits are positive. 
C) The price is lower than at an equivalent firm forced by regulators to charge ATC pricing. 
D) Average costs would be lowered by expanding output. 
A) The output is equivalent to an unregulated monopolist. 
B) Economic profits are positive. 
C) The price is lower than at an equivalent firm forced by regulators to charge ATC pricing. 
D) Average costs would be lowered by expanding output.

Question 2

This agency develops and enforces environmental standards for air, water, toxic waste, and noise.

Accepted Answer

A) Environmental Protection Agency 
B) Consumer Product Safety Commission 
C) Equal Employment Opportunity Commission 
D) Occupational Safety and Health Administration 
A) Environmental Protection Agency 
B) Consumer Product Safety Commission 
C) Equal Employment Opportunity Commission 
D) Occupational Safety and Health Administration

Question 3

According to your text, the annual cost of regulation (federal, state and local)in the United States is estimated to exceed ________ per year.

Accepted Answer

A) $500 million 
B) $900 million 
C) $50 billion 
D) $1 trillion 
A) $500 million 
B) $900 million 
C) $50 billion 
D) $1 trillion

Question 4

Which of the following statements regarding economic regulation is TRUE?

Accepted Answer

A) Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return. 
B) Rate-of-return regulation has been much more effective than cost-of-service regulation. 
C) Economic regulation deals only with rates of return, and not with prices. 
D) Economic regulation deals mainly with prices firms charge, but firms can alter their return by altering quality of service, effectively raising the price per constant-quality-unit. 
A) Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return. 
B) Rate-of-return regulation has been much more effective than cost-of-service regulation. 
C) Economic regulation deals only with rates of return, and not with prices. 
D) Economic regulation deals mainly with prices firms charge, but firms can alter their return by altering quality of service, effectively raising the price per constant-quality-unit.

Question 5

According to the capture hypothesis,

Accepted Answer

A) regulators eventually support the views of consumers instead of the firms or the taxpayers, regardless of the reasons why the regulatory agency was established. 
B) regulators support the view of the regulated firms all along because that is the reason the regulatory agency was established. 
C) regulators eventually support the views of the regulated firms instead of the consumers or taxpayers, regardless of why the regulatory agency was established. 
D) regulators eventually support the views of either the firms or the consumers, but at the expense of the taxpayers, regardless of the reasons why the regulatory agency was established. 
A) regulators eventually support the views of consumers instead of the firms or the taxpayers, regardless of the reasons why the regulatory agency was established. 
B) regulators support the view of the regulated firms all along because that is the reason the regulatory agency was established. 
C) regulators eventually support the views of the regulated firms instead of the consumers or taxpayers, regardless of why the regulatory agency was established. 
D) regulators eventually support the views of either the firms or the consumers, but at the expense of the taxpayers, regardless of the reasons why the regulatory agency was established.

Question 6

The argument that suggests that regulators balance the interests of firms, consumers, and legislators is called

Accepted Answer

A) the capture hypothesis. 
B) the creative response theory. 
C) the share-the-gains, share-the-pains theory. 
D) the theory of optimal regulation. 
A) the capture hypothesis. 
B) the creative response theory. 
C) the share-the-gains, share-the-pains theory. 
D) the theory of optimal regulation.

Question 7

What is the difference between product versioning and product bundling? Which of these two business practices have antitrust authorities been more likely to regard to be the form of price discrimination called tie-in sales? Why?

Accepted Answer

Versioning entails selling a product in

Question 8

When consumers have less information about a product than do sellers, then this is the situation of

Accepted Answer

A) asymmetric information. 
B) symmetric information. 
C) caveat emptor. 
D) a market failure. 
A) asymmetric information. 
B) symmetric information. 
C) caveat emptor. 
D) a market failure.

Question 9

With average cost pricing, the monopolist

Accepted Answer

A) earns no accounting profit. 
B) produces where P = MC. 
C) earns a normal rate of return for its shareholders. 
D) does not cover opportunity costs. 
A) earns no accounting profit. 
B) produces where P = MC. 
C) earns a normal rate of return for its shareholders. 
D) does not cover opportunity costs.

Question 10

The goals of rate regulation have included the prevention of

Accepted Answer

A) monopoly profits. 
B) oligopolistic pricing. 
C) marginal cost pricing. 
D) average cost pricing. 
A) monopoly profits. 
B) oligopolistic pricing. 
C) marginal cost pricing. 
D) average cost pricing.

Question 11

In the above figure, if this natural monopolist were regulated and allowed to earn a "fair" rate of return, it would sell the product at the price ________.

Accepted Answer

A) A 
B) C 
C) B 
D) F 
A) A 
B) C 
C) B 
D) F

Question 12

Which of the following federal agencies is engaged in social regulation?

Accepted Answer

A) Equal Employment Opportunity Commission 
B) Office of the Comptroller of the Currency 
C) The Securities and Exchange Commission 
D) Federal Deposit Insurance Corporation 
A) Equal Employment Opportunity Commission 
B) Office of the Comptroller of the Currency 
C) The Securities and Exchange Commission 
D) Federal Deposit Insurance Corporation

Question 13

-Refer to the above figure. Regulators cannot force natural monopolies to operate in the long run at a loss. Therefore, they usually require the firms to charge a price equal to

Accepted Answer

A) marginal cost, which is   . 
B) marginal cost, which is   . 
C) average cost, which is   . 
D) average cost, which is   . 
A) marginal cost, which is   . 
B) marginal cost, which is   . 
C) average cost, which is   . 
D) average cost, which is   .

Question 14

A natural monopoly owes its existence to

Accepted Answer

A) control of a key input. 
B) persistently declining long-run average costs as scale increases. 
C) patents. 
D) increasing marginal returns and the ability to obtain quantity discounts from suppliers. 
A) control of a key input. 
B) persistently declining long-run average costs as scale increases. 
C) patents. 
D) increasing marginal returns and the ability to obtain quantity discounts from suppliers.

Question 15

One of the basic differences between social and economic regulations is that

Accepted Answer

A) economic regulations only apply to financial institutions while social regulations apply to a greater variety of institutions. 
B) social regulations only apply to non-profit organizations while economic regulations apply only to for-profit organizations. 
C) economic regulations cover only particular industries while social regulations apply to all firms in the economy. 
D) economic regulations focus on the banking industry while social regulations focus on monopolies. 
A) economic regulations only apply to financial institutions while social regulations apply to a greater variety of institutions. 
B) social regulations only apply to non-profit organizations while economic regulations apply only to for-profit organizations. 
C) economic regulations cover only particular industries while social regulations apply to all firms in the economy. 
D) economic regulations focus on the banking industry while social regulations focus on monopolies.

Question 16

-Use the above figure. Suppose that a regulatory agency requires this natural monopolist to engage in marginal cost pricing. This would lead to

Accepted Answer

A) losses, which would drive the monopolist out of business in the long run. 
B) profits, which would encourage new producers to enter the industry in the long run. 
C) profits, but new firms cannot enter the industry in the long run due to high barriers to entry. 
D) losses, which would encourage the monopolist to lower costs in the long run. 
A) losses, which would drive the monopolist out of business in the long run. 
B) profits, which would encourage new producers to enter the industry in the long run. 
C) profits, but new firms cannot enter the industry in the long run due to high barriers to entry. 
D) losses, which would encourage the monopolist to lower costs in the long run.

Question 17

Regulation of a natural monopoly that forces it to price and produce as if it were a competitive firm results in

Accepted Answer

A) the market being instantly competitive. 
B) higher profits for the monopoly. 
C) economic losses for the monopoly. 
D) a highly unstable marketplace. 
A) the market being instantly competitive. 
B) higher profits for the monopoly. 
C) economic losses for the monopoly. 
D) a highly unstable marketplace.

Question 18

The first step in enforcing any antitrust policy is to

Accepted Answer

A) win the support of the public. 
B) win congressional approval. 
C) win the approval of the state senators from the state where the company is headquartered. 
D) define the market. 
A) win the support of the public. 
B) win congressional approval. 
C) win the approval of the state senators from the state where the company is headquartered. 
D) define the market.

Question 19

-In the above figure, an unregulated natural monopolist will produce output level

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4.

Question 20

The first antitrust law in the United States was the

Accepted Answer

A) FTC Act. 
B) Clayton Act. 
C) Sherman Act. 
D) Robinson-Patman Act. 
A) FTC Act. 
B) Clayton Act. 
C) Sherman Act. 
D) Robinson-Patman Act.

Exam 27: Regulation and Antitrust Policy in a Globalized Economy

-In the above figure, which of the following statements is FALSE if the firm is operating at output level Q2?

This agency develops and enforces environmental standards for air, water, toxic waste, and noise.

According to your text, the annual cost of regulation (federal, state and local)in the United States is estimated to exceed ________ per year.

Which of the following statements regarding economic regulation is TRUE?

According to the capture hypothesis,

The argument that suggests that regulators balance the interests of firms, consumers, and legislators is called

What is the difference between product versioning and product bundling? Which of these two business practices have antitrust authorities been more likely to regard to be the form of price discrimination called tie-in sales? Why?

When consumers have less information about a product than do sellers, then this is the situation of

With average cost pricing, the monopolist

The goals of rate regulation have included the prevention of

In the above figure, if this natural monopolist were regulated and allowed to earn a "fair" rate of return, it would sell the product at the price ________.

Which of the following federal agencies is engaged in social regulation?

-Refer to the above figure. Regulators cannot force natural monopolies to operate in the long run at a loss. Therefore, they usually require the firms to charge a price equal to

A natural monopoly owes its existence to

One of the basic differences between social and economic regulations is that

-Use the above figure. Suppose that a regulatory agency requires this natural monopolist to engage in marginal cost pricing. This would lead to

Regulation of a natural monopoly that forces it to price and produce as if it were a competitive firm results in

The first step in enforcing any antitrust policy is to

-In the above figure, an unregulated natural monopolist will produce output level

The first antitrust law in the United States was the

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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