Question 1

What is the lemons problem? How do firms try to address this problem?

Accepted Answer

The lemons problem occurs when asymmetri

Question 2

If government regulators make the natural monopolist set price equal to marginal cost

Accepted Answer

A) the natural monopolist will make zero economic profits. 
B) the natural monopolist will make normal profits. 
C) the natural monopolist will make losses and go out of business. 
D) the natural monopolist will make positive economic profits larger than if it wasn't regulated at all. 
A) the natural monopolist will make zero economic profits. 
B) the natural monopolist will make normal profits. 
C) the natural monopolist will make losses and go out of business. 
D) the natural monopolist will make positive economic profits larger than if it wasn't regulated at all.

Question 3

The main rationale for government regulatory functions is

Accepted Answer

A) to regulate for-profit institutions. 
B) to make sure that firms are maximizing profits. 
C) to expand the scope of the government. 
D) to protect consumer interests. 
A) to regulate for-profit institutions. 
B) to make sure that firms are maximizing profits. 
C) to expand the scope of the government. 
D) to protect consumer interests.

Question 4

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good.Which of the following statements is true?

Accepted Answer

A) Under both the capture theory and the share-the-gains,share-the-pain theory profits will decrease. 
B) An increase in price will occur quicker in the share-the gains,share-the-pain theory than the capture theory. 
C) An increase in price will occur quicker in the capture theory than the share-the-gains,share-the-pain theory. 
D) In the capture theory there will be an increase in price but not in the share-the-gains,share-the-pain theory. 
A) Under both the capture theory and the share-the-gains,share-the-pain theory profits will decrease. 
B) An increase in price will occur quicker in the share-the gains,share-the-pain theory than the capture theory. 
C) An increase in price will occur quicker in the capture theory than the share-the-gains,share-the-pain theory. 
D) In the capture theory there will be an increase in price but not in the share-the-gains,share-the-pain theory.

Question 5

The U.S.antitrust enforcers determine whether a merger violates antitrust laws by examining

Accepted Answer

A) both the resulting change in the HHI and the level of post-merger HHI. 
B) only the resulting change in the HHI but not the level of HHI after the merger. 
C) both the size of the market after the merger and the profits of the mergers. 
D) whether the mergers are monopolies before they merge. 
A) both the resulting change in the HHI and the level of post-merger HHI. 
B) only the resulting change in the HHI but not the level of HHI after the merger. 
C) both the size of the market after the merger and the profits of the mergers. 
D) whether the mergers are monopolies before they merge.

Question 6

-Refer to the above figure.An unregulated natural monopolist would choose

Accepted Answer

A) output rate of $\mathrm { Q } _ { 1 }$ and price
$P _ { 2 }$ . 
B) output rate $\mathrm { Q } _ { 1 }$ and price
$\mathrm { P } _ { 5 }$ . 
C) output rate $\mathrm { Q } _ { 3 }$ and price
$\mathrm { P } _ { 3 }$ . 
D) output rate $\mathrm { Q } _ { 4 }$ and price
$P _ { 1 }$ . 
A) output rate of $\mathrm { Q } _ { 1 }$ and price
$P _ { 2 }$ . 
B) output rate $\mathrm { Q } _ { 1 }$ and price
$\mathrm { P } _ { 5 }$ . 
C) output rate $\mathrm { Q } _ { 3 }$ and price
$\mathrm { P } _ { 3 }$ . 
D) output rate $\mathrm { Q } _ { 4 }$ and price
$P _ { 1 }$ .

Question 7

Cost-of-service regulation allows regulated companies to charge prices that

Accepted Answer

A) reflect the cost of regulating the industry,plus the marginal cost of the product. 
B) allow monopoly profits to the producer. 
C) reflect the actual average cost of providing the services to the customer. 
D) are determined by competition in other geographic markets. 
A) reflect the cost of regulating the industry,plus the marginal cost of the product. 
B) allow monopoly profits to the producer. 
C) reflect the actual average cost of providing the services to the customer. 
D) are determined by competition in other geographic markets.

Question 8

Which of the following mergers would most likely be challenged by the Federal Trade Commission?

Accepted Answer

A) Two restaurants in a large metro area 
B) Two largest wireless service providers in the U.S.wireless communication industry 
C) An automaker and an insurance company 
D) One oil refinery in the U.S.and another oil refinery in Canada 
A) Two restaurants in a large metro area 
B) Two largest wireless service providers in the U.S.wireless communication industry 
C) An automaker and an insurance company 
D) One oil refinery in the U.S.and another oil refinery in Canada

Question 9

Regulation that keeps the rate of return in the industry competitive is known as

Accepted Answer

A) rate-of-return regulation. 
B) cost-of-service regulation. 
C) social regulation. 
D) deregulation. 
A) rate-of-return regulation. 
B) cost-of-service regulation. 
C) social regulation. 
D) deregulation.

Question 10

The problem of asymmetric information that brings about a general decline in product quality in an industry is

Accepted Answer

A) a market failure. 
B) the result of government regulation. 
C) creative response. 
D) the lemons problem. 
A) a market failure. 
B) the result of government regulation. 
C) creative response. 
D) the lemons problem.

Question 11

-In the above figure,if this natural monopolist were regulated and allowed to earn a "fair" rate of return,it would produce

Accepted Answer

A) at Q1 output rate. 
B) at Q2 output rate. 
C) at Q3 output rate. 
D) past the Q3 output rate. 
A) at Q1 output rate. 
B) at Q2 output rate. 
C) at Q3 output rate. 
D) past the Q3 output rate.

Question 12

According to the capture hypothesis,it appears that regulators eventually end up

Accepted Answer

A) adopting policies that benefit the firms being regulated. 
B) adopting policies that benefit consumers at the expense of the regulated firms. 
C) adopting policies that benefit no one. 
D) satisfying neither producers nor consumers,but striving to control as much as possible. 
A) adopting policies that benefit the firms being regulated. 
B) adopting policies that benefit consumers at the expense of the regulated firms. 
C) adopting policies that benefit no one. 
D) satisfying neither producers nor consumers,but striving to control as much as possible.

Question 13

-Refer to the above figure.From the standpoint of society,the optimal output is

Accepted Answer

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

Question 14

The United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved

Accepted Answer

A) ABC and NBC. 
B) two auto producers. 
C) two steel producers. 
D) two concrete producers. 
A) ABC and NBC. 
B) two auto producers. 
C) two steel producers. 
D) two concrete producers.

Question 15

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 16

The primary purpose of economic regulation of an industry is to

Accepted Answer

A) control the prices charged by the regulated industry. 
B) increase taxes across the board. 
C) reduce output. 
D) control hiring and firing within the industry. 
A) control the prices charged by the regulated industry. 
B) increase taxes across the board. 
C) reduce output. 
D) control hiring and firing within the industry.

Question 17

Which of the following refers to the capture hypothesis of regulation?

Accepted Answer

A) The ability of the government to capture monopoly profits 
B) The control of regulatory agencies by firms in an industry 
C) Consumer cost savings captured through regulation 
D) Horizontal mergers 
A) The ability of the government to capture monopoly profits 
B) The control of regulatory agencies by firms in an industry 
C) Consumer cost savings captured through regulation 
D) Horizontal mergers

Question 18

All of the following are exempted from antitrust laws EXCEPT

Accepted Answer

A) labor unions. 
B) Microsoft Windows. 
C) professional baseball. 
D) hospitals. 
A) labor unions. 
B) Microsoft Windows. 
C) professional baseball. 
D) hospitals.

Question 19

One of the agencies responsible for enforcement of antitrust policy is

Accepted Answer

A) the Trust Division of Congress. 
B) the Federal Trade Commission. 
C) the World Trade Organization. 
D) the Food and Drug Administration. 
A) the Trust Division of Congress. 
B) the Federal Trade Commission. 
C) the World Trade Organization. 
D) the Food and Drug Administration.

Question 20

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.

Exam 14: Regulation and Antitrust Policy in a Globalized Economy

What is the lemons problem? How do firms try to address this problem?

If government regulators make the natural monopolist set price equal to marginal cost

The main rationale for government regulatory functions is

Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good.Which of the following statements is true?

The U.S.antitrust enforcers determine whether a merger violates antitrust laws by examining

-Refer to the above figure.An unregulated natural monopolist would choose

Cost-of-service regulation allows regulated companies to charge prices that

Which of the following mergers would most likely be challenged by the Federal Trade Commission?

Regulation that keeps the rate of return in the industry competitive is known as

The problem of asymmetric information that brings about a general decline in product quality in an industry is

-In the above figure,if this natural monopolist were regulated and allowed to earn a "fair" rate of return,it would produce

According to the capture hypothesis,it appears that regulators eventually end up

-Refer to the above figure.From the standpoint of society,the optimal output is

The United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved

With average cost pricing,the monopolist

The primary purpose of economic regulation of an industry is to

Which of the following refers to the capture hypothesis of regulation?

All of the following are exempted from antitrust laws EXCEPT

One of the agencies responsible for enforcement of antitrust policy is

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

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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