Question 1

A regulated natural monopoly that must set price equal to average cost will

Accepted Answer

A) suffer an economic loss 
B) earn a net economic profit 
C) earn a normal profit 
D) earn so little that it will close in the long run 
E) earn no profits of any kind 
A) suffer an economic loss 
B) earn a net economic profit 
C) earn a normal profit 
D) earn so little that it will close in the long run 
E) earn no profits of any kind

Question 2

Exhibit 15-2   The welfare loss associated with the unregulated natural monopoly in Exhibit 15-2 is shown by the area

Accepted Answer

A) cef 
B) abc 
C) adf 
D) dfeg 
E) bcfd 
A) cef 
B) abc 
C) adf 
D) dfeg 
E) bcfd

Question 3

As concentration in an industry increases, the Herfindahl index falls.

Accepted Answer

A) True 
 B)False

Question 4

The purpose of antitrust laws is to

Accepted Answer

A) reduce anticompetitive activities 
B) increase anticompetitive activities 
C) guarantee worker safety 
D) promote quality products 
E) prevent large-scale production 
A) reduce anticompetitive activities 
B) increase anticompetitive activities 
C) guarantee worker safety 
D) promote quality products 
E) prevent large-scale production

Question 5

The largest value the Herfindahl index can have is

Accepted Answer

A) 100, which would indicate a monopoly 
B) 100 for firms equal in size 
C) 100, 000 
D) 10, 000, which would indicate a pure monopoly 
E) infinity 
A) 100, which would indicate a monopoly 
B) 100 for firms equal in size 
C) 100, 000 
D) 10, 000, which would indicate a pure monopoly 
E) infinity

Question 6

Price discrimination that substantially lessens competition is prohibited by the Clayton Act.

Accepted Answer

A) True 
 B)False

Question 7

Ersatz Kreme will sell its filling to Hunky Donuts only if Hunky Donuts agrees not to buy filling from other suppliers.This is an example of

Accepted Answer

A) price discrimination 
B) exclusive dealing 
C) a tying contract 
D) interlocking directorates 
E) a trust 
A) price discrimination 
B) exclusive dealing 
C) a tying contract 
D) interlocking directorates 
E) a trust

Question 8

Which of the following is true of a natural monopoly?

Accepted Answer

A) If regulated, the firm will have a higher level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit. 
B) If regulated, the firm will have a lower level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit. 
C) If regulated, the firm that is only allowed a normal profit will be allowed to charge a price in excess of its average cost. 
D) If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its marginal cost. 
E) If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its average cost. 
A) If regulated, the firm will have a higher level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit. 
B) If regulated, the firm will have a lower level of output than an unregulated firm, whether the regulation is based on average cost, marginal cost, or normal profit. 
C) If regulated, the firm that is only allowed a normal profit will be allowed to charge a price in excess of its average cost. 
D) If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its marginal cost. 
E) If regulated, the firm that is only allowed a normal profit will be allowed to produce more than a firm that must set a price equal to its average cost.

Question 9

Which of the following U.S.antitrust laws prohibits mergers through the acquisition of a firm's assets if the merger would lessen competition?

Accepted Answer

A) the Sherman Antitrust Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Celler-Kefauver Anti-Merger Act 
E) the Federal Trade Commission Act 
A) the Sherman Antitrust Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Celler-Kefauver Anti-Merger Act 
E) the Federal Trade Commission Act

Question 10

The government often enacts regulation that benefits producers because

Accepted Answer

A) the government seeks to regulate in the best interest of the public 
B) consumers have less information than producers and therefore seek government protection 
C) consumers have a strong interest in matters that affect their standard of living 
D) producers have a strong interest in matters that affect their specialized source of income 
E) producers seek to act in the best interest of the public 
A) the government seeks to regulate in the best interest of the public 
B) consumers have less information than producers and therefore seek government protection 
C) consumers have a strong interest in matters that affect their standard of living 
D) producers have a strong interest in matters that affect their specialized source of income 
E) producers seek to act in the best interest of the public

Question 11

The ability of a firm to raise the price without losing all its sales to rivals is called

Accepted Answer

A) market power 
B) social regulation 
C) economic regulation 
D) antitrust policy 
E) natural monopoly 
A) market power 
B) social regulation 
C) economic regulation 
D) antitrust policy 
E) natural monopoly

Question 12

U.S.antitrust policy is focused primarily on market conduct.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 15-5   The natural monopoly depicted in exhibit 15-5, if unregulated would earn how much profit?

Accepted Answer

A) $10 
B) $20 
C) $30 
D) $40 
E) $50 
A) $10 
B) $20 
C) $30 
D) $40 
E) $50

Question 14

If the government wishes to provide a natural monopolist with a "fair" rate of return, it will force the firm to set

Accepted Answer

A) P = MC 
B) P = AC 
C) P = MR 
D) P = AVC 
E) MR = MC 
A) P = MC 
B) P = AC 
C) P = MR 
D) P = AVC 
E) MR = MC

Question 15

Exhibit 15-2   In Exhibit 15-2, the increase in consumer surplus that occurs when price is set equal to marginal cost rather than at the profit-maximizing level, as it would be in an unregulated monopoly, is shown by area

Accepted Answer

A) abc 
B) adf 
C) cef 
D) dfeg 
E) bcfd 
A) abc 
B) adf 
C) cef 
D) dfeg 
E) bcfd

Question 16

Exhibit 15-4   If regulators allow the natural monopolist in Exhibit 15-4 to earn only a normal profit, it will result in an increase in consumer surplus compared to the profit maximizing result.

Accepted Answer

A) True 
 B)False

Question 17

The average cost curve for a natural monopoly is downward sloping where it intersects the market demand curve.

Accepted Answer

A) True 
 B)False

Question 18

There are five firms in the cresset industry.The market shares of the five firms are 60 percent, 15 percent, 15 percent, 6 percent, and 4 percent.The Herfindahl index is

Accepted Answer

A) 96 
B) 4, 086 
C) 10, 000 
D) 4, 102 
E) 4, 100 
A) 96 
B) 4, 086 
C) 10, 000 
D) 4, 102 
E) 4, 100

Question 19

If a firm with a 20 percent market share merges with a firm with 5 percent of the market, by how much will the Herfindahl index change? The other firms have 40 percent, 15 percent, 10 percent, and 10 percent shares.

Accepted Answer

A) It rises by 100. 
B) It rises by 200. 
C) It falls by 100. 
D) It falls by 200. 
E) It rises by 25. 
A) It rises by 100. 
B) It rises by 200. 
C) It falls by 100. 
D) It falls by 200. 
E) It rises by 25.

Exam 15: Economic Regulation and Antitrust Policy

A regulated natural monopoly that must set price equal to average cost will

Exhibit 15-2 The welfare loss associated with the unregulated natural monopoly in Exhibit 15-2 is shown by the area

As concentration in an industry increases, the Herfindahl index falls.

The purpose of antitrust laws is to

The largest value the Herfindahl index can have is

Price discrimination that substantially lessens competition is prohibited by the Clayton Act.

Ersatz Kreme will sell its filling to Hunky Donuts only if Hunky Donuts agrees not to buy filling from other suppliers.This is an example of

Which of the following is true of a natural monopoly?

Which of the following U.S.antitrust laws prohibits mergers through the acquisition of a firm's assets if the merger would lessen competition?

The government often enacts regulation that benefits producers because

The ability of a firm to raise the price without losing all its sales to rivals is called

U.S.antitrust policy is focused primarily on market conduct.

Exhibit 15-5 The natural monopoly depicted in exhibit 15-5, if unregulated would earn how much profit?

If the government wishes to provide a natural monopolist with a "fair" rate of return, it will force the firm to set

Exhibit 15-2 In Exhibit 15-2, the increase in consumer surplus that occurs when price is set equal to marginal cost rather than at the profit-maximizing level, as it would be in an unregulated monopoly, is shown by area

Exhibit 15-4 If regulators allow the natural monopolist in Exhibit 15-4 to earn only a normal profit, it will result in an increase in consumer surplus compared to the profit maximizing result.

The average cost curve for a natural monopoly is downward sloping where it intersects the market demand curve.

There are five firms in the cresset industry.The market shares of the five firms are 60 percent, 15 percent, 15 percent, 6 percent, and 4 percent.The Herfindahl index is

If a firm with a 20 percent market share merges with a firm with 5 percent of the market, by how much will the Herfindahl index change? The other firms have 40 percent, 15 percent, 10 percent, and 10 percent shares.

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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