Question 1

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 2

Explain the share-the-gains, share-the-pains theory. How does it differ from the capture hypothesis?

Accepted Answer

The share-the-gains, share-the-pains the

Question 3

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 4

The price charged by a monopolist is socially inefficient because the price

Accepted Answer

A)  exceeds the true marginal cost of the resources used. 
B)  is less than the opportunity cost of the resources used. 
C)  puts the monopolist into a higher tax bracket. 
D)  is too low. 
A)  exceeds the true marginal cost of the resources used. 
B)  is less than the opportunity cost of the resources used. 
C)  puts the monopolist into a higher tax bracket. 
D)  is too low.

Question 5

Regulators usually encourage natural monopolists to engage in

Accepted Answer

A)  marginal cost pricing. 
B)  average cost pricing. 
C)  marginal cost pricing, with subsidies from the government offsetting the losses. 
D)  inefficient pricing. 
A)  marginal cost pricing. 
B)  average cost pricing. 
C)  marginal cost pricing, with subsidies from the government offsetting the losses. 
D)  inefficient pricing.

Question 6

The major goal of social regulation is

Accepted Answer

A)  a better quality of life through a less polluted environment, better working conditions, and safer and better products. 
B)  to make sure that firms are not earning monopoly profits. 
C)  to make sure that prices are kept low enough so that every person can purchase the good. 
D)  to make sure that the firm produces at the socially optimal point of production. 
A)  a better quality of life through a less polluted environment, better working conditions, and safer and better products. 
B)  to make sure that firms are not earning monopoly profits. 
C)  to make sure that prices are kept low enough so that every person can purchase the good. 
D)  to make sure that the firm produces at the socially optimal point of production.

Question 7

If a natural monopolist is unregulated, then

Accepted Answer

A)  the monopoly will produce efficiently from society's point of view. 
B)  the monopoly will produce inefficiently from society's point of view. 
C)  the monopolist will be earning just a normal rate of return on investment. 
D)  the monopolist will determine the profit maximizing quantity by equating marginal cost to the demand curve. 
A)  the monopoly will produce efficiently from society's point of view. 
B)  the monopoly will produce inefficiently from society's point of view. 
C)  the monopolist will be earning just a normal rate of return on investment. 
D)  the monopolist will determine the profit maximizing quantity by equating marginal cost to the demand curve.

Question 8

In marginal cost pricing, the natural monopoly would have to set price equal to

Accepted Answer

A)  AFC. 
B)  AVC. 
C)  ATC. 
D)  MC. 
A)  AFC. 
B)  AVC. 
C)  ATC. 
D)  MC.

Question 9

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 10

Which of the following government agencies enforces social regulation?

Accepted Answer

A)  Environmental Protection Agency 
B)  Federal Deposit Insurance Corporation 
C)  Federal Reserve 
D)  Federal Aviation Administration 
A)  Environmental Protection Agency 
B)  Federal Deposit Insurance Corporation 
C)  Federal Reserve 
D)  Federal Aviation Administration

Question 11

Enforcement of antitrust policy is the responsibility of

Accepted Answer

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

Question 12

Regulation that is based on allowing prices to reflect only the actual operating cost of production is known as

Accepted Answer

A)  average cost regulation. 
B)  marginal cost regulation. 
C)  rate-of-return regulation. 
D)  cost-of-service regulation. 
A)  average cost regulation. 
B)  marginal cost regulation. 
C)  rate-of-return regulation. 
D)  cost-of-service regulation.

Question 13

A natural monopoly that is NOT regulated will choose to produce at the

Accepted Answer

A)  minimum point of the long-run average cost curve. 
B)  point at which marginal cost is above average total cost. 
C)  point at which the demand curve intersects the long-run average cost curve. 
D)  point at which marginal revenue equals marginal cost. 
A)  minimum point of the long-run average cost curve. 
B)  point at which marginal cost is above average total cost. 
C)  point at which the demand curve intersects the long-run average cost curve. 
D)  point at which marginal revenue equals marginal cost.

Question 14

If antitrust legislation is successful, then the monopolistic firm will

Accepted Answer

A)  decrease output and charge a lower price than before. 
B)  increase output and charge a higher price than before. 
C)  increase output and charge a lower price than before. 
D)  decrease output and charge a higher price than before. 
A)  decrease output and charge a lower price than before. 
B)  increase output and charge a higher price than before. 
C)  increase output and charge a lower price than before. 
D)  decrease output and charge a higher price than before.

Question 15

When Apple put together a set of mobile apps with its iPhone, it was practicing

Accepted Answer

A)  a loss leader. 
B)  tie-in sales. 
C)  bundling. 
D)  compacting. 
A)  a loss leader. 
B)  tie-in sales. 
C)  bundling. 
D)  compacting.

Question 16

The Federal Trade Commission regulates which of the following?

Accepted Answer

A)  unfair trade practices by businesses 
B)  financial markets 
C)  trade with third world countries 
D)  the banking industry 
A)  unfair trade practices by businesses 
B)  financial markets 
C)  trade with third world countries 
D)  the banking industry

Question 17

One type of economic regulation often used in the United States by various public utility commissions allows prices to reflect only the actual cost of production and no monopoly profits. This type of economic regulation is known as

Accepted Answer

A)  rate-of-return regulation. 
B)  cost-of-service regulation. 
C)  price per constant-quality-unit regulation. 
D)  creative response regulation. 
A)  rate-of-return regulation. 
B)  cost-of-service regulation. 
C)  price per constant-quality-unit regulation. 
D)  creative response regulation.

Question 18

All of the following are exempt from antitrust lawsuits EXCEPT

Accepted Answer

A)  labor unions. 
B)  professional baseball. 
C)  public transportation. 
D)  software developers. 
A)  labor unions. 
B)  professional baseball. 
C)  public transportation. 
D)  software developers.

Question 19

Suppose technical change makes it cheaper for cable television suppliers to supply their service. The capture theory would predict that the regulators would

Accepted Answer

A)  allow the firms to capture the savings and would lower price only if the firms asked them to. 
B)  force the firms to pass the savings on to consumers in the form of lower prices. 
C)  force the firms to pass the savings on to consumers in the form of better service. 
D)  force the firms to pass some of the savings on to consumers and permit them to keep some of the savings for themselves. 
A)  allow the firms to capture the savings and would lower price only if the firms asked them to. 
B)  force the firms to pass the savings on to consumers in the form of lower prices. 
C)  force the firms to pass the savings on to consumers in the form of better service. 
D)  force the firms to pass some of the savings on to consumers and permit them to keep some of the savings for themselves.

Question 20

Using the figure as a guide, which of the following is FALSE with respect to profit maximization and the monopolist?

Accepted Answer

A)  A monopolist (like any other firm) will select an output rate at which marginal revenue is equal to marginal cost, at the intersection of the marginal revenue curve and the marginal cost curve. 
B)  The monopolist will produce quantity Qm and charge a price of Pm. 
C)  When compared to a competitive situation, consumers pay a higher price to the monopolist, and consequently are forced to purchase more of a product as price varies directly with quantity demanded. 
D)  Profits are the positive difference between total revenues and total costs. 
A)  A monopolist (like any other firm) will select an output rate at which marginal revenue is equal to marginal cost, at the intersection of the marginal revenue curve and the marginal cost curve. 
B)  The monopolist will produce quantity Qm and charge a price of Pm. 
C)  When compared to a competitive situation, consumers pay a higher price to the monopolist, and consequently are forced to purchase more of a product as price varies directly with quantity demanded. 
D)  Profits are the positive difference between total revenues and total costs.

Exam 27: Regulation and Antitrust Policy in a Globalized Economy

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

Explain the share-the-gains, share-the-pains theory. How does it differ from the capture hypothesis?

Which of the following statements regarding economic regulation is TRUE?

The price charged by a monopolist is socially inefficient because the price

Regulators usually encourage natural monopolists to engage in

The major goal of social regulation is

If a natural monopolist is unregulated, then

In marginal cost pricing, the natural monopoly would have to set price equal to

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

Which of the following government agencies enforces social regulation?

Enforcement of antitrust policy is the responsibility of

Regulation that is based on allowing prices to reflect only the actual operating cost of production is known as

A natural monopoly that is NOT regulated will choose to produce at the

If antitrust legislation is successful, then the monopolistic firm will

When Apple put together a set of mobile apps with its iPhone, it was practicing

The Federal Trade Commission regulates which of the following?

One type of economic regulation often used in the United States by various public utility commissions allows prices to reflect only the actual cost of production and no monopoly profits. This type of economic regulation is known as

All of the following are exempt from antitrust lawsuits EXCEPT

Suppose technical change makes it cheaper for cable television suppliers to supply their service. The capture theory would predict that the regulators would

Using the figure as a guide, which of the following is FALSE with respect to profit maximization and the monopolist?

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

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

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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