Question 1

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

Accepted Answer

A) horizontal 
B) vertical 
C) conglomerate 
D) parallel 
A) horizontal 
B) vertical 
C) conglomerate 
D) parallel B

Question 2

If natural monopolies are regulated to produce where there is resource-allocative efficiency, they produce where

Accepted Answer

A) price equals average total cost. 
B) marginal revenue equals marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost. 
A) price equals average total cost. 
B) marginal revenue equals marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost. C

Question 3

Exhibit 25-3   Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Accepted Answer

A) 840. 
B) 1,110. 
C) 1,330. 
D) 1,980. 
E) 10,000. 
A) 840. 
B) 1,110. 
C) 1,330. 
D) 1,980. 
E) 10,000. B

Question 4

Network goods such as telephones, computer operating systems and the like, will tend to become monopolies because consumers will naturally tend to buy from the largest supplier of the good. who will eventually become a monopoly. This monopoly position

Accepted Answer

A) automatically violates the Sherman Antitrust Act 
B) violates the Sherman Antitrust Act only if the company illegally acts to maintain their position 
C) is automatically subject to FTC or state regulation and does not fall under the Sherman Antitrust Act 
D) is not covered by the Sherman Antitrust Act 
A) automatically violates the Sherman Antitrust Act 
B) violates the Sherman Antitrust Act only if the company illegally acts to maintain their position 
C) is automatically subject to FTC or state regulation and does not fall under the Sherman Antitrust Act 
D) is not covered by the Sherman Antitrust Act

Question 5

Exhibit 25-3   Refer to Exhibit 25-3. The four-firm concentration ratio for this industry is

Accepted Answer

A) 46 percent. 
B) 49 percent. 
C) 56 percent. 
D) 44 percent. 
E) This cannot be determined without further information. 
A) 46 percent. 
B) 49 percent. 
C) 56 percent. 
D) 44 percent. 
E) This cannot be determined without further information.

Question 6

The Clayton Act of 1914 makes price discrimination, exclusive dealers, tying contracts, and the acquisition of competing companies' stock illegal when their effects "substantially lessen competition or tend to create a monopoly."

Accepted Answer

A) True 
 B)False

Question 7

The Herfindahl index is obtained by

Accepted Answer

A) adding the squares of the market shares of each firm in the industry. 
B) adding the market shares of the largest four firms in the industry. 
C) finding the difference between the squares of the market shares of each firm in the industry. 
D) finding the difference between the market shares of each firm in the industry. 
A) adding the squares of the market shares of each firm in the industry. 
B) adding the market shares of the largest four firms in the industry. 
C) finding the difference between the squares of the market shares of each firm in the industry. 
D) finding the difference between the market shares of each firm in the industry.

Question 8

The Justice Department began using the Herfindahl index (rather than the four- and eight-firm concentration ratios)in 1982.

Accepted Answer

A) True 
 B)False

Question 9

The natural monopolist might have an incentive to go out of business under

Accepted Answer

A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) average-cost pricing. 
A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) average-cost pricing.

Question 10

Natural monopolies can be regulated based on price, profit, or output.

Accepted Answer

A) True 
 B)False

Question 11

"Tying contracts" are

Accepted Answer

A) agreements between unions and businesses such that when a labor contract is signed, the union and the firm are bound by its terms. 
B) selling to a retailer on the condition that the retailer not resell the product to another business. 
C) selling to a retailer on the condition that the retailer not carry any rival products. 
D) arrangements whereby the sale of one product is dependent on the purchase of some other product. 
A) agreements between unions and businesses such that when a labor contract is signed, the union and the firm are bound by its terms. 
B) selling to a retailer on the condition that the retailer not resell the product to another business. 
C) selling to a retailer on the condition that the retailer not carry any rival products. 
D) arrangements whereby the sale of one product is dependent on the purchase of some other product.

Question 12

In the past, it was theorized that __________ firms were the most likely to innovate.  In recent years, new information has suggested that __________ firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __________ important.

Accepted Answer

A) small; large; more 
B) small; large; less 
C) large; small; more 
D) large; small; less 
A) small; large; more 
B) small; large; less 
C) large; small; more 
D) large; small; less

Question 13

The capture theory of regulation contends that

Accepted Answer

A) the public "captures" the benefits of regulation through lower prices. 
B) natural monopolies "capture" high profits through the reduction of output. 
C) the regulatory agency is eventually "captured" by the special interests of the industry being regulated. 
D) large corporations "capture" high profits by regulating the tastes and preferences of the buying public. 
A) the public "captures" the benefits of regulation through lower prices. 
B) natural monopolies "capture" high profits through the reduction of output. 
C) the regulatory agency is eventually "captured" by the special interests of the industry being regulated. 
D) large corporations "capture" high profits by regulating the tastes and preferences of the buying public.

Question 14

The Robinson-Patman Act of 1936 prohibited

Accepted Answer

A) large retailers from selling at prices below those prices charged by small retailers. 
B) large retailers from engaging in false and deceptive acts and practices. 
C) suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D) customers from seeking out the lowest-priced good from different retailers. 
A) large retailers from selling at prices below those prices charged by small retailers. 
B) large retailers from engaging in false and deceptive acts and practices. 
C) suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D) customers from seeking out the lowest-priced good from different retailers.

Question 15

If an industry consists of 20 firms holding equal market shares, the Herfindahl index is

Accepted Answer

A) 500. 
B) 400. 
C) 1,800. 
D) 2,500. 
E) This cannot be determined without further information. 
A) 500. 
B) 400. 
C) 1,800. 
D) 2,500. 
E) This cannot be determined without further information.

Question 16

What is the Herfindahl index of an industry made up of ten equal-sized firms?

Accepted Answer

A) 1,800 
B) 10,000 
C) 100 
D) 1,000 
A) 1,800 
B) 10,000 
C) 100 
D) 1,000

Question 17

The public interest theory of regulation holds that

Accepted Answer

A) regulators are seeking to do and will do through regulation what is in the best interest of the public. 
B) over time, natural monopolies will wither away. 
C) regulators are uninformed on specific matters that relate to regulation and therefore are often swayed by false information. 
D) natural monopolies manipulate the public into buying particular products. 
A) regulators are seeking to do and will do through regulation what is in the best interest of the public. 
B) over time, natural monopolies will wither away. 
C) regulators are uninformed on specific matters that relate to regulation and therefore are often swayed by false information. 
D) natural monopolies manipulate the public into buying particular products.

Question 18

The Robinson-Patman Act of 1936

Accepted Answer

A) made interlocking directorates illegal. 
B) set up the Federal Trade Commission (FT
C) to deal with "unfair methods of competition." 
C) made monopolization of trade a misdemeanor. 
D) prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else. 
E) empowered the FTC to deal with false and deceptive acts or practices. 
A) made interlocking directorates illegal. 
B) set up the Federal Trade Commission (FT
C) to deal with "unfair methods of competition." 
C) made monopolization of trade a misdemeanor. 
D) prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else. 
E) empowered the FTC to deal with false and deceptive acts or practices.

Question 19

Switching costs make it less likely that the consumer of a network good will shift to a different company's product. This is called the __________ effect.

Accepted Answer

A) lock-in 
B) system 
C) Internet 
D) compression 
A) lock-in 
B) system 
C) Internet 
D) compression

Question 20

Exhibit 25-5 ​
 
Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)then it will produce __________ quantity of output and charge a price of __________ per unit.

Accepted Answer

A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P2 
E) Q2; P2 
A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P2 
E) Q2; P2

Exam 12: Government and Product Markets: Antitrust and Regulation

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

If natural monopolies are regulated to produce where there is resource-allocative efficiency, they produce where

Exhibit 25-3 Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Network goods such as telephones, computer operating systems and the like, will tend to become monopolies because consumers will naturally tend to buy from the largest supplier of the good. who will eventually become a monopoly. This monopoly position

Exhibit 25-3 Refer to Exhibit 25-3. The four-firm concentration ratio for this industry is

The Clayton Act of 1914 makes price discrimination, exclusive dealers, tying contracts, and the acquisition of competing companies' stock illegal when their effects "substantially lessen competition or tend to create a monopoly."

The Herfindahl index is obtained by

The Justice Department began using the Herfindahl index (rather than the four- and eight-firm concentration ratios)in 1982.

The natural monopolist might have an incentive to go out of business under

Natural monopolies can be regulated based on price, profit, or output.

"Tying contracts" are

In the past, it was theorized that __________ firms were the most likely to innovate. In recent years, new information has suggested that __________ firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __________ important.

The capture theory of regulation contends that

The Robinson-Patman Act of 1936 prohibited

If an industry consists of 20 firms holding equal market shares, the Herfindahl index is

What is the Herfindahl index of an industry made up of ten equal-sized firms?

The public interest theory of regulation holds that

The Robinson-Patman Act of 1936

Switching costs make it less likely that the consumer of a network good will shift to a different company's product. This is called the __________ effect.

Exhibit 25-5 ​ Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)then it will produce __________ quantity of output and charge a price of __________ per unit.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Factor Markets: With Emphasis on the Labor Market

Wages, Union, and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Filters

In the past, it was theorized that firms were the most likely to innovate. In recent years, new information has suggested that firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __ important.

Exhibit 25-5 Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)then it will produce quantity of output and charge a price of per unit.