Question 1

Antitrust action in the United States

Accepted Answer

A) has followed an inconsistent pattern of enforcement 
B) has always provided specific guidelines for acceptable behavior 
C) applies only to natural monopolies 
D) involves suing a competitive firm for changing its prices 
E) provides protection to those in regulated industries 
A) has followed an inconsistent pattern of enforcement 
B) has always provided specific guidelines for acceptable behavior 
C) applies only to natural monopolies 
D) involves suing a competitive firm for changing its prices 
E) provides protection to those in regulated industries

Question 2

The rail system in Metropolis is a natural monopoly.If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?

Accepted Answer

A) Price and output will be higher than if the monopoly were unregulated. 
B) Price and output will be lower than if the monopoly were unregulated. 
C) Price will be lower and output higher than if the monopoly were unregulated. 
D) Price will be higher and output lower than if the monopoly were unregulated. 
E) Profit will be lower than if the monopoly were unregulated, but price and output could either increase or decrease. 
A) Price and output will be higher than if the monopoly were unregulated. 
B) Price and output will be lower than if the monopoly were unregulated. 
C) Price will be lower and output higher than if the monopoly were unregulated. 
D) Price will be higher and output lower than if the monopoly were unregulated. 
E) Profit will be lower than if the monopoly were unregulated, but price and output could either increase or decrease.

Question 3

If a firm can double inputs and, thereby, more than double output over the range of output the market demands, it is a

Accepted Answer

A) natural monopoly 
B) local monopoly 
C) price discrimination monopoly 
D) monopsony 
E) candidate for antitrust prosecution 
A) natural monopoly 
B) local monopoly 
C) price discrimination monopoly 
D) monopsony 
E) candidate for antitrust prosecution

Question 4

Which of the following groups benefits from regulation, according to the special interest theory of regulation?

Accepted Answer

A) all consumers 
B) all producers 
C) only certain consumers 
D) only certain producers 
E) society as a whole 
A) all consumers 
B) all producers 
C) only certain consumers 
D) only certain producers 
E) society as a whole

Question 5

A monopoly or group of firms acting together as a monopoly

Accepted Answer

A) cannot perform the economic task of resource allocation 
B) allocates resources in the most efficient way possible 
C) misallocates resources by producing more output than a competitive industry would 
D) misallocates resources by producing where the marginal benefit of the final unit produced exceeds its marginal cost 
E) misallocates resources by producing where the marginal benefit of the final unit produced is less than its marginal cost 
A) cannot perform the economic task of resource allocation 
B) allocates resources in the most efficient way possible 
C) misallocates resources by producing more output than a competitive industry would 
D) misallocates resources by producing where the marginal benefit of the final unit produced exceeds its marginal cost 
E) misallocates resources by producing where the marginal benefit of the final unit produced is less than its marginal cost

Question 6

Compared to the profit-maximizing outcome, average cost pricing in natural monopoly leads to

Accepted Answer

A) all of the following 
B) a higher price 
C) decreased consumer surplus 
D) the elimination of economic profit 
E) less output 
A) all of the following 
B) a higher price 
C) decreased consumer surplus 
D) the elimination of economic profit 
E) less output

Question 7

If government regulators force a natural monopoly to produce where price equals marginal cost, the monopoly will earn

Accepted Answer

A) a "fair return" 
B) positive economic profit 
C) zero economic profit 
D) negative economic profit 
E) greater economic profit than if it were unregulated 
A) a "fair return" 
B) positive economic profit 
C) zero economic profit 
D) negative economic profit 
E) greater economic profit than if it were unregulated

Question 8

When a court uses the per se rule to interpret the Sherman Antitrust Act, its ruling is based on market conduct alone.

Accepted Answer

A) True 
 B)False

Question 9

In defending itself against the government's antitrust action, Microsoft argued that it did not have a high market share.

Accepted Answer

A) True 
 B)False

Question 10

A requirement that buyers of one service also purchase another service from the same seller is called

Accepted Answer

A) exclusive dealing 
B) an interlocking merger 
C) a second good contract 
D) a tying contract 
E) a legal agreement 
A) exclusive dealing 
B) an interlocking merger 
C) a second good contract 
D) a tying contract 
E) a legal agreement

Question 11

Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company.Which of the following arguments supports marginal cost pricing?

Accepted Answer

A) Marginal cost pricing gives the monopoly economic profit and a reason to stay in business. 
B) Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business. 
C) Marginal cost pricing is allocatively efficient. 
D) Average cost pricing requires subsidies, which can be costly. 
E) Average cost pricing forces monopolies to operate at a loss. 
A) Marginal cost pricing gives the monopoly economic profit and a reason to stay in business. 
B) Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business. 
C) Marginal cost pricing is allocatively efficient. 
D) Average cost pricing requires subsidies, which can be costly. 
E) Average cost pricing forces monopolies to operate at a loss.

Question 12

If a monopolist is forced to set price equal to average total cost, economic profit

Accepted Answer

A) will be negative, and the monopolist may go out of business 
B) will be zero 
C) will be positive 
D) will be negative, and the firm will stay in business if there are significant fixed costs 
E) may be positive, negative, or zero 
A) will be negative, and the monopolist may go out of business 
B) will be zero 
C) will be positive 
D) will be negative, and the firm will stay in business if there are significant fixed costs 
E) may be positive, negative, or zero

Question 13

"Mere size is no offense" is an antitrust ruling based on the rule of reason.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following practices is not prohibited by the Clayton Act?

Accepted Answer

A) merger through the acquisition of assets, which substantially lessens competition 
B) price discrimination that substantially lessens competition 
C) tying contracts that substantially lessen competition 
D) exclusive dealing that substantially lessens competition 
E) interlocking directorates that substantially lessen competition 
A) merger through the acquisition of assets, which substantially lessens competition 
B) price discrimination that substantially lessens competition 
C) tying contracts that substantially lessen competition 
D) exclusive dealing that substantially lessens competition 
E) interlocking directorates that substantially lessen competition

Question 15

Business conduct that is illegal per se is illegal

Accepted Answer

A) only if there is no economic rationale for it 
B) only if it results in a monopoly 
C) without regard to its economic rationale or consequences 
D) only if it is prohibited by the Clayton Act 
E) whether or not Congress has passed legislation prohibiting the practice 
A) only if there is no economic rationale for it 
B) only if it results in a monopoly 
C) without regard to its economic rationale or consequences 
D) only if it is prohibited by the Clayton Act 
E) whether or not Congress has passed legislation prohibiting the practice

Question 16

Government regulation of the prices and entry conditions in an industry is an example of

Accepted Answer

A) safety regulation 
B) economic regulation 
C) Herfindahl regulation 
D) antitrust regulation 
E) Social Security legislation 
A) safety regulation 
B) economic regulation 
C) Herfindahl regulation 
D) antitrust regulation 
E) Social Security legislation

Question 17

The rail system in Metropolis is a natural monopoly.If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?

Accepted Answer

A) The managers of the rail system will be allowed to adjust marginal cost so that they can get a normal rate of return on capital. 
B) The managers of the rail system will be allowed to adjust marginal cost so that they can get a fair profit. 
C) The rail system will earn economic profit at that fare. 
D) If the government doesn't give the rail system a subsidy to supplement revenue from fares, the system will face continuous economic losses. 
E) If the government doesn't give the rail system a subsidy to supplement revenue from fares, fare increases will push marginal cost upward. 
A) The managers of the rail system will be allowed to adjust marginal cost so that they can get a normal rate of return on capital. 
B) The managers of the rail system will be allowed to adjust marginal cost so that they can get a fair profit. 
C) The rail system will earn economic profit at that fare. 
D) If the government doesn't give the rail system a subsidy to supplement revenue from fares, the system will face continuous economic losses. 
E) If the government doesn't give the rail system a subsidy to supplement revenue from fares, fare increases will push marginal cost upward.

Question 18

Which of the following is the best example of a natural monopoly?

Accepted Answer

A) gold mining in the Colorado Rocky Mountains 
B) filmmaking in Hollywood 
C) electrical service to homes in Seattle 
D) production of film by Kodak 
E) production of computers by IBM 
A) gold mining in the Colorado Rocky Mountains 
B) filmmaking in Hollywood 
C) electrical service to homes in Seattle 
D) production of film by Kodak 
E) production of computers by IBM

Question 19

Which of the following markets would have the highest Herfindahl index? A market with

Accepted Answer

A) ten firms of widely different sizes 
B) ten firms of approximately the same size 
C) five firms of widely different sizes 
D) five firms of approximately the same size 
E) eight firms exactly the same size 
A) ten firms of widely different sizes 
B) ten firms of approximately the same size 
C) five firms of widely different sizes 
D) five firms of approximately the same size 
E) eight firms exactly the same size

Question 20

Technological change is decreasing competition in the market for media.

Accepted Answer

A) True 
 B)False

Exam 15: Economic Regulation and Antitrust Policy

Antitrust action in the United States

The rail system in Metropolis is a natural monopoly.If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?

If a firm can double inputs and, thereby, more than double output over the range of output the market demands, it is a

Which of the following groups benefits from regulation, according to the special interest theory of regulation?

A monopoly or group of firms acting together as a monopoly

Compared to the profit-maximizing outcome, average cost pricing in natural monopoly leads to

If government regulators force a natural monopoly to produce where price equals marginal cost, the monopoly will earn

When a court uses the per se rule to interpret the Sherman Antitrust Act, its ruling is based on market conduct alone.

In defending itself against the government's antitrust action, Microsoft argued that it did not have a high market share.

A requirement that buyers of one service also purchase another service from the same seller is called

Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company.Which of the following arguments supports marginal cost pricing?

If a monopolist is forced to set price equal to average total cost, economic profit

"Mere size is no offense" is an antitrust ruling based on the rule of reason.

Which of the following practices is not prohibited by the Clayton Act?

Business conduct that is illegal per se is illegal

Government regulation of the prices and entry conditions in an industry is an example of

The rail system in Metropolis is a natural monopoly.If the government regulates the system by setting the fare equal to marginal cost, which of the following will be true?

Which of the following is the best example of a natural monopoly?

Which of the following markets would have the highest Herfindahl index? A market with

Technological change is decreasing competition in the market for media.

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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