Deck 13: Controlling Market Power: Antitrust and Regulation

Question 1

Refer to Figure 13.1.If the cable company depicted was free to sell to any number of subscribers it desires and set any price,it would sell to ________ subscribers at a price of ________.

A) 800; $15
B) 1,000; $16
C) 2,200; $13
D) 2,500; $12

Answer 1

1,000; $16

Question 2

Refer to Figure 13.2.If the government sought to regulate the firm and allowed it to earn only zero economic profit,the government should set

A) P = MC.
B) P = ATC.
C) MR = MC.
D) MR = ATC.

Answer 2

P = ATC.

Question 3

Most often,a natural monopoly will

A) charge the profit-maximizing price.
B) charge a price equal to average variable cost.
C) be subject to a maximum price set by the government.
D) all of the above

Answer 3

be subject to a maximum price set by the government.

Question 4

A natural monopoly is the result of barriers such as patents and government licenses.

Question 5

What will happen if a second firm enters a natural monopolistic market?

A) The demand curve of the typical firm will shift to the left.
B) The demand curve will lay above the long-run average cost curve.
C) The profit will be reduced to zero for both firms.
D) It will have no effect on the profit of the first firm.

Question 6

Recall the Application about the British experience with private water companies in the nineteenth century to answer the following question(s).
Recall the Application.What does water privatization show in terms of the distribution of water?

A) The water is a best managed when the government takes control.
B) The water is a natural monopoly.
C) The water distribution is optimized when the price is fixed.
D) none of the above

Question 7

Which of the following industries is a good example of a natural monopoly?

A) water systems
B) operating system software
C) military equipment sold to the federal government
D) none of the above

Question 8

A natural monopoly is characterized by

A) decreasing average total cost and a long-run average cost curve being positively sloped and steep.
B) decreasing average total cost and low and increasing marginal cost.
C) decreasing average total cost and a long-run average cost curve being negatively sloped and steep.
D) increasing average total cost and large and increasing marginal cost.

Question 9

If the government sets a maximum price for a natural monopolistic firm,a change in production cost will

A) increase the firm's profits.
B) decrease the firm's profits.
C) have little effect on the firm's profit.
D) prevent the firm to earn economic profit in the short run.

Question 10

If a natural monopoly is allowed to choose the profit-maximizing price,it will most likely be lower than if it is regulated.

Question 11

To maximize profit,a natural monopolist will produce at a point where marginal revenue is equal to marginal cost.

Question 12

Recall the Application about the merger of Sirius Satellite Radio and XM Satellite Radio to answer the following question(s).
Recall the Application.Which of the following is a barrier to entry in the satellite radio industry?

A) high fixed costs
B) too many subscribers
C) high monthly charges to consumers
D) too much competition

Question 13

The government often deregulates natural monopolies.

Question 14

Refer to Figure 13.1.If the government regulates Armstrong Cable so they can earn only zero economic profit,the price would be set at

A) $12.00.
B) $12.50.
C) $13.00.
D) $16.00.

Question 15

A natural monopoly occurs when

A) the scale economies in production are so large that only a single firm can survive.
B) there are firms joining together to limit output and raise prices.
C) the government intervenes by putting barriers such as licenses or certifications.
D) there are patents.

Question 16

Refer to Figure 13.1.The type of firm pictured is a

A) patent monopoly.
B) natural monopoly.
C) strategic-resource monopoly.
D) government-franchise monopoly.

Question 17

Refer to Figure 13.2.The profit-maximizing price for the unregulated firm would be

A)
B)
C)
D) cannot be determined from the information given

Question 18

In a natural monopoly,the government will try to set the price at which the demand curve intersects the monopolist's

A) long-run marginal revenue curve.
B) long-run marginal cost curve.
C) long-run average total cost curve.
D) long-run average fixed cost curve.

Question 19

Under an average-cost pricing policy,a local water company will face which of the following?

A) The local water company chooses the price at which short-run average cost curve intersects the average.
B) The local water company chooses the price at which long-run average cost curve intersects the average.
C) The government chooses the price at which the demand curve intersects the short-run marginal-cost curve
D) The government chooses the price at which the demand curve intersects the long-run average-cost curve.

Question 20

Under an average-cost pricing policy,the government picks the price at which the market demand curve intersects the monopolist's long-run average-cost curve.

Question 21

Define a natural monopoly.

Question 22

Which of the following government agencies is responsible for initiating actions against individuals or firms that are suspected of violating antitrust laws?

A) the Federal Trade Commission
B) the Consumer Protection Agency
C) the Department of Justice
D) Both A and C are correct.

Question 23

The Hart-Scott-Rodino Act

A) created the Federal Trade Commission.
B) was passed by Congress in 1914.
C) extended antitrust legislation to proprietorships and partnerships.
D) outlawed price discrimination.

Question 24

The Sherman Act

A) enhanced firms' ability to enforce cartel agreements.
B) made it illegal to engage in practices that result in a restraint of trade.
C) was passed to encourage judicial leniency in the review of cooperative agreements.
D) was passed to clarify the Clayton Act.

Question 25

The Celler-Kefauver Act

A) made predatory pricing illegal.
B) outlawed asset-purchase mergers that reduce competition.
C) created the Federal Trade Commission.
D) all of the above

Question 26

Which government agency was created in 1914 to enforce antitrust laws?

A) the Department of Justice
B) the Federal Reserve System
C) the Financial Regulatory Committee
D) the Federal Trade Commission

Question 27

The Clayton Act

A) prohibited predatory pricing.
B) outlawed tie-in sales contracts.
C) extended antitrust legislation to proprietorships and partnerships.
D) all of the above

Question 28

The Robinson-Patman Act

A) made tie-in sales contracts illegal.
B) was the first antitrust legislation passed by Congress.
C) created the Federal Trade Commission.
D) made predatory pricing illegal.

Question 29

When Interstate Bakeries tried to buy the maker of Wonder Bread,

A) the government concluded that the merger would not significantly affect the price of bread.
B) the two brands of bread were determined to be close substitutes.
C) the Federal Trade Commission believed that the merger was a good idea because the combined firm would face lower costs and the cost savings could be passed to consumers in the form of lower prices.
D) the government concluded that the merger would reduce tax receipts paid to state governments, and therefore blocked the merger attempt.

Question 30

A second firm will not enter a natural monopolistic market due to the large economies of scale.

Question 31

The Sherman Act

A) was passed in 1890.
B) declared monopoly and trade restraints legal.
C) contained clear language.
D) all of the above

Question 32

Which of the following is NOT an antitrust policy used by the government?

A) regulating business practices
B) blocking mergers
C) arranging a group of trustees
D) breaking up monopolies

Question 33

An average-cost pricing policy allows natural monopolies to earn positive economic profits.

Question 34

A trust is

A) a cartel.
B) legal under the Sherman Act.
C) an arrangement in which the owners of several companies transfer their decision-making powers to a group of trustees.
D) all of the above

Question 35

When Staples and Office Depot attempted to merge in 1997,

A) the Federal Trade Commission convinced the courts to block the merger on the grounds that the merger would lead to less competition in the office supplies industry.
B) it was determined that Office Depot and Staples were not substitutes for each other.
C) the Federal Trade Commission believed that the merger would increase the competitiveness of the office supplies industry.
D) evidence showed that the merger would lead to lower prices on office supplies.

Question 36

A horizontal merger

A) occurs when two firms that produce similar products combine their operations.
B) will never be opposed by the U.S. government but a vertical merger will.
C) always results in a loss of efficiency in a market.
D) involves two firms at different stages of the production process.

Question 37

Which of the following industries has experienced a break-up of a large monopoly into smaller competing firms?

A) tobacco
B) oil
C) telephone
D) all of the above

Question 38

What is a natural monopoly? How is it different from other monopolies?

Question 39

Refer to Figure 13.3.What price-output combination would result for the natural monopoly if it was unregulated? What price-output combination would result if the government regulated the natural monopoly using average-cost pricing? How would profit differ in each situation?

Question 40

The Clayton Act was passed in order to

A) declare that the telephone industry is a natural monopoly.
B) strengthen the Sherman Act.
C) change the focus of antitrust law from conduct to structure.
D) all of the above

Question 41

Which of the following concerning predatory pricing is true?

A) Predatory pricing involves charging different prices to different customers based on their willingness-to-pay.
B) Predatory pricing involves raising prices very high so that most consumers are unable to purchase the product, though a few continue to do so, and the firm makes huge profits by having lower production costs.
C) Predatory pricing is used to drive competitors out of the market.
D) Predatory pricing permanently lowers the price in the market.

Question 42

A merger of two firms selling close substitutes may lead to lower prices.

Question 43

Predatory pricing is best exemplified when a firm

A) cuts its prices in order to increase competition in the market.
B) exercises its monopoly power by raising price.
C) cuts its prices temporarily in order to drive out any competition.
D) requires consumers to purchase products together rather than separately.

Question 44

The government's policies regarding anti-competitive actions are called industrial policy.

Question 45

Recall the Application about the 1998 merger between Pennzoil and Quaker State to answer the following question(s). The merger resulted in a company with a market share of 38 percent: 29 percent from Pennzoil and 9 percent from Quaker State.
Recall the Application.What happened to the prices of their products when the merger occurred?

A) Pennzoil raised its product prices.
B) Quaker State raised its product prices.
C) Pennzoil decreased its product prices.
D) Quaker decreased its product prices.

Question 46

From a business perspective,the main problem with predatory pricing is that it never ends and the firm must repeatedly lose money to drive out new competitors.

Question 47

The Robinson-Patman Act prohibits the selling of products at "unreasonably low prices" with the intention of increasing competition.

Question 48

A trust is an arrangement where the owners of several firms attempt to drive each other out of business by lowering their prices.

Question 49

The Clayton Act outlawed specific practices that discourage competition.

Question 50

Which of the following mergers was successfully blocked by the United States government?

A) Interstate Bakeries and Continental Bakery
B) Microsoft and Intuit
C) Standard Oil and Mobil
D) American Tobacco Company and Reynolds

Question 51

The practice of requiring a consumer to purchase two or more products together,rather than separately,is called

A) free-riding.
B) cartelling.
C) tie-in sales.
D) predatory pricing.

Question 52

One possible benefit from a merger is that the new firm could consolidate production,marketing,and a administrative operations,leading to lower the production average costs.

Question 53

Recall the Application about the merger of Office Depot and Office Max to answer the following question(s).
Recall the Application.In 2013,________ approved the merger of Office Depot and Office Max.

A) the Federal Trade Commission
B) the Commerce Department
C) the Supreme Court
D) the World Bank

Question 54

In 1982,the U.S.government allowed AT&T to merge with the Regional Bell Operating Companies.

Question 55

The Clayton Act extends antitrust policy to proprietorships and partnerships.

Question 56

Which of the following laws prohibits predatory pricing?

A) the Sherman Act
B) the Robinson-Patman Act
C) the Clayton Act
D) the Federal Trade Commission Act

Question 57

A pricing scheme under which a firm decreases its price in order to drive its rival out of business is known as

A) tie-in sales.
B) colluding.
C) predatory pricing.
D) bundling.

Question 58

A company that sells a product and is looking to be involved in the integration of another of its products,thus requiring consumers to purchase both of them together rather than separately,is engaging in a concept known as

A) predatory pricing.
B) price fixing.
C) collusion.
D) tie-in sales.

Question 59

A tie-in sale occurs when

A) it encourages the enforcement of cooperative agreements.
B) a business sells a few products that work well when used together.
C) a business forces the buyer of one product to purchase another product.
D) a business sells a product at a price below its production cost.

Question 60

The Consumer Protection Agency is responsible for initiating actions against individuals or firms suspected of anti-competitive behavior.

Question 61

Describe the Celler-Kefauver Act.

Question 62

The Federal Trade Commission blocked the merger between Office Depot and Staples because there was evidence that the merger would increase competition in the office supplies industry.

Question 63

What is a trust?

Question 64

Tie-in sales refers to the business practice of charging different prices to different groups of consumers based on their willingness-to-pay.

Question 65

Describe the Sherman Antitrust Act.

Question 66

Give an example of a tie-in sale.

Question 67

Describe the Hart-Scott-Rodino Act.

Question 68

Name three industries in which the government has broken up a monopoly.

Question 69

Predatory pricing occurs when a firm attempts to drive a competitor out of business by selling its product above production cost.

Question 70

Describe the Wonder Bread case.

Question 71

The Federal Trade Commission may attempt to block a merger if they believe that the merger will lead to greater competition and lower prices in a market.

Question 72

If Xerox requires individuals who purchase their copiers to also purchase Xerox toner fluid,then Xerox is engaging in the practice of predatory pricing.

Question 73

A merger is a process in which two or more firms combine their operations.

Question 74

Describe the Clayton Act.

Question 75

Explain why the government broke up the Standard Oil Trust.

Question 76

What are tie-in sales?

Question 77

The Federal Trade Commission was concerned that a merger between Continental Baking and Interstate Bakeries would lower bread prices in the bread market.

Question 78

Describe the Robinson-Patman Act.

Question 79

Describe the Office Depot/Staples case.

Question 80

What is a merger?