Question 1

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Accepted Answer

A network externality exists where the u

Question 2

Economic efficiency in a free market occurs when

Accepted Answer

A) consumer surplus is maximized. 
B) producer surplus is maximized. 
C) the sum of consumer surplus and producer surplus is maximized. 
D) price is as low as possible. 
A) consumer surplus is maximized. 
B) producer surplus is maximized. 
C) the sum of consumer surplus and producer surplus is maximized. 
D) price is as low as possible.

Question 3

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

Accepted Answer

A) True 
 B)False

Question 4

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies.This is an example of

Accepted Answer

A) a conglomerate merger. 
B) a horizontal merger. 
C) a vertical merger. 
D) a two-dimensional merger. 
A) a conglomerate merger. 
B) a horizontal merger. 
C) a vertical merger. 
D) a two-dimensional merger.

Question 5

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

Accepted Answer

A) to maximize profit the firm should increase output. 
B) to maximize profit the firm should decrease output. 
C) to maximize profit the firm should continue to produce the output it is producing. 
D) Not enough information is given to say what the firm should do to maximize profit. 
A) to maximize profit the firm should increase output. 
B) to maximize profit the firm should decrease output. 
C) to maximize profit the firm should continue to produce the output it is producing. 
D) Not enough information is given to say what the firm should do to maximize profit.

Question 6

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies.To maintain its market share, De Beers

Accepted Answer

A) began buying so-called "blood diamonds" in order to keep these diamonds out of the control of other diamond companies. 
B) adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand. 
C) bought diamond mines in Canada and Russia that had been its competitors. 
D) lowered the prices of its diamonds to make the market appear less profitable to potential competitors. 
A) began buying so-called "blood diamonds" in order to keep these diamonds out of the control of other diamond companies. 
B) adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand. 
C) bought diamond mines in Canada and Russia that had been its competitors. 
D) lowered the prices of its diamonds to make the market appear less profitable to potential competitors.

Question 7

A virtuous cycle occurs

Accepted Answer

A) when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise. 
B) when monopoly profits are used to create new products for additional monopoly profits. 
C) when a firm can attract enough buyers initially to increase a product's usefulness and attract even more buyers. 
D) when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales. 
A) when lobbyists petition members of Congress to grant a public franchise; the lobbyist then raise money for those Congress members who granted the franchise. 
B) when monopoly profits are used to create new products for additional monopoly profits. 
C) when a firm can attract enough buyers initially to increase a product's usefulness and attract even more buyers. 
D) when a firm's sales volume reaches a level where the firm can take advantage of economies of scale; thereby reducing the price of the product to further boost its sales.

Question 8

A public franchise

Accepted Answer

A) is a corporation that is owned by stockholders. 
B) results from ownership of a key raw material. 
C) is a government designation that a private firm is the only legal producer of a good or service. 
D) is an unregulated monopoly necessary for the public good. 
A) is a corporation that is owned by stockholders. 
B) results from ownership of a key raw material. 
C) is a government designation that a private firm is the only legal producer of a good or service. 
D) is an unregulated monopoly necessary for the public good.

Question 9

Which two factors make regulating mergers complicated?

Accepted Answer

A) First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B) First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and managers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports)on the degree of competition in the markets of the merged firms. 
C) First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D) First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually. 
A) First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. 
B) First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and managers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports)on the degree of competition in the markets of the merged firms. 
C) First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D) First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.

Question 10

Figure 15-3
   
Figure 15-3 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the profit-maximizing/loss-minimizing output level?

Accepted Answer

A) 630 units 
B) 800 units 
C) 850 units 
D) 880 units 
A) 630 units 
B) 800 units 
C) 850 units 
D) 880 units

Question 11

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

Accepted Answer

A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. 
C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. 
A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. 
B) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. 
C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus. 
D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Question 12

Identify the type of merger in each of the following situations and indicate how the post-merger concentration ratio for the industry is affected.
a.A steel company merges with a coal and iron ore mining company.
b.Staples, a retailer of office supplies, acquires Office Depot, another retailer of office supplies.
c.An oil company merges with pipeline, shipping, and railroad companies as well as refineries and gas stations.

Accepted Answer

a.This would be a vertical merger; the c

Question 13

To maximize profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue equals marginal cost, and charges a price given by the demand curve at that output level.

Accepted Answer

A) True 
 B)False

Question 14

Figure 15-6
   
Figure 15-6 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-6.The monopolist's total revenue is

Accepted Answer

A) $1,116. 
B) $1,488. 
C) $1,726.40 
D) $1,826. 
A) $1,116. 
B) $1,488. 
C) $1,726.40 
D) $1,826.

Question 15

Explain why the monopolist has no supply curve?

Accepted Answer

A supply curve shows the relationship be

Question 16

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

Accepted Answer

A) A virtuous cycle refers to successful research and development that leads to information that is used to develop other new products. 
B) A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another market. 
C) A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an increase in social welfare (the "invisible hand"). 
D) A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional customers because its product's value has been increased by other customers using it, which attracts even more customers. 
A) A virtuous cycle refers to successful research and development that leads to information that is used to develop other new products. 
B) A virtuous cycle refers to a firm using the profits from a monopoly in one market to establish a monopoly in another market. 
C) A virtuous cycle refers to the situation where the pursuit of self-interest in establishing an entry barrier leads to an increase in social welfare (the "invisible hand"). 
D) A virtuous cycle refers to a situation where if a firm can attract enough customers initially, it can attract additional customers because its product's value has been increased by other customers using it, which attracts even more customers.

Question 17

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Accepted Answer

A) concentration ratios; the Herfindahl-Hirschman Index; market standards 
B) concentration standards; concentration ratios; competitive analysis 
C) economic analysis; political analysis; dynamic analysis 
D) market definition; measure of concentration; merger standards 
A) concentration ratios; the Herfindahl-Hirschman Index; market standards 
B) concentration standards; concentration ratios; competitive analysis 
C) economic analysis; political analysis; dynamic analysis 
D) market definition; measure of concentration; merger standards

Question 18

How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?

Accepted Answer

A monopolist sells a smaller q

Question 19

Figure 15-3
   
Figure 15-3 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the price charged at the profit-maximizing/loss-minimizing output level?

Accepted Answer

A) $38 
B) $54 
C) $68 
D) $75 
A) $38 
B) $54 
C) $68 
D) $75

Question 20

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?

Accepted Answer

Average revenue is equal to price for an

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Economic efficiency in a free market occurs when

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies.This is an example of

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies.To maintain its market share, De Beers

A virtuous cycle occurs

A public franchise

Which two factors make regulating mergers complicated?

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the profit-maximizing/loss-minimizing output level?

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

To maximize profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue equals marginal cost, and charges a price given by the demand curve at that output level.

Figure 15-6 Figure 15-6 shows the cost and demand curves for a monopolist. -Refer to Figure 15-6.The monopolist's total revenue is

Explain why the monopolist has no supply curve?

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the price charged at the profit-maximizing/loss-minimizing output level?

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 15: Monopoly and Antitrust Policy

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Economic efficiency in a free market occurs when

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies.This is an example of

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies.To maintain its market share, De Beers

A virtuous cycle occurs

A public franchise

Which two factors make regulating mergers complicated?

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the profit-maximizing/loss-minimizing output level?

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements regarding economic surplus in each market structure is true?

To maximize profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue equals marginal cost, and charges a price given by the demand curve at that output level.

Figure 15-6 Figure 15-6 shows the cost and demand curves for a monopolist. -Refer to Figure 15-6.The monopolist's total revenue is

Explain why the monopolist has no supply curve?

In discussions of barriers to entry, what is meant by the term "virtuous cycle"?

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3.Suppose the monopolist represented in the diagram above produces positive output.What is the price charged at the profit-maximizing/loss-minimizing output level?

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters