Question 1

A network good is a good whose value decreases as the expected number of units sold increases.

Accepted Answer

A) True 
 B)False  False

Question 2

The Herfindahl index

Accepted Answer

A)  measures the degree of concentration in an industry. 
B)  is the square of the sum of the market shares of each firm in the industry. 
C)  is not subject to any of the criticisms of the concentration ratios. 
D)  a and b 
E)  all of the above 
A)  measures the degree of concentration in an industry. 
B)  is the square of the sum of the market shares of each firm in the industry. 
C)  is not subject to any of the criticisms of the concentration ratios. 
D)  a and b 
E)  all of the above A

Question 3

Economists assert that government regulation

Accepted Answer

A)  has no costs if it has positive benefits. 
B)  has no benefits if it has positive costs. 
C)  always has benefits in excess of costs. 
D)  always has costs in excess of benefits. 
E)  has benefits that may be greater than, less than, or equal to the costs. 
A)  has no costs if it has positive benefits. 
B)  has no benefits if it has positive costs. 
C)  always has benefits in excess of costs. 
D)  always has costs in excess of benefits. 
E)  has benefits that may be greater than, less than, or equal to the costs. E

Question 4

If natural monopolies are regulated to produce where there is a normal profit,they produce where

Accepted Answer

A)  price equals average total cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals marginal cost. 
D)  marginal revenue equals average total cost. 
A)  price equals average total cost. 
B)  marginal revenue equals marginal cost. 
C)  price equals marginal cost. 
D)  marginal revenue equals average total cost.

Question 5

Exhibit 26-5
  
-Refer to Exhibit 26-5.If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency,then it will produce __________ quantity of output and charge a price of __________ per unit.

Accepted Answer

A)  Q1; P3 
B)  Q1; P2 
C)  Q2; P3 
D)  Q3; P1 
E)  none of the above 
A)  Q1; P3 
B)  Q1; P2 
C)  Q2; P3 
D)  Q3; P1 
E)  none of the above

Question 6

Which of the following statements is false?

Accepted Answer

A)  Average-cost pricing usually refers to setting a price for a natural monopoly firm that is equal to its ATC, thus guaranteeing the firm a normal profit. 
B)  An economist thinks that there are both benefits and costs to most (if not all) types of regulation. 
C)  The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large. 
D)  One of the unintended effects of profit regulation (in the form of guaranteeing the natural monopoly firm that it will always earn normal profit-nothing more and nothing less) is that the natural monopoly has no incentive to keep its costs down. 
A)  Average-cost pricing usually refers to setting a price for a natural monopoly firm that is equal to its ATC, thus guaranteeing the firm a normal profit. 
B)  An economist thinks that there are both benefits and costs to most (if not all) types of regulation. 
C)  The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large. 
D)  One of the unintended effects of profit regulation (in the form of guaranteeing the natural monopoly firm that it will always earn normal profit-nothing more and nothing less) is that the natural monopoly has no incentive to keep its costs down.

Question 7

Natural monopolies exist because of

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  decreasing returns to scale. 
D)  public franchises. 
E)  deregulation. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  decreasing returns to scale. 
D)  public franchises. 
E)  deregulation.

Question 8

The Herfindahl index measures the

Accepted Answer

A)  average market share of the firms in an industry. 
B)  total market share of the four largest domestic firms in an industry. 
C)  total market share of the four largest firms worldwide in an industry. 
D)  degree of concentration in an industry. 
E)  degree of competition among the four largest firms in an industry. 
A)  average market share of the firms in an industry. 
B)  total market share of the four largest domestic firms in an industry. 
C)  total market share of the four largest firms worldwide in an industry. 
D)  degree of concentration in an industry. 
E)  degree of competition among the four largest firms in an industry.

Question 9

The Federal Trade Commission Act of 1914

Accepted Answer

A)  made conspiracy in the restraint of trade illegal. 
B)  made price discrimination, exclusive dealing, tying contracts, and the acquisition of competing companies' stock illegal when they "substantially lessen competition or tend to create a monopoly." 
C)  declared "unfair methods of competition in commerce" illegal. 
D)  attempted to decrease the failure rate of small businesses by protecting them from the competition of large and growing chain stores. 
E)  banned anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company. 
A)  made conspiracy in the restraint of trade illegal. 
B)  made price discrimination, exclusive dealing, tying contracts, and the acquisition of competing companies' stock illegal when they "substantially lessen competition or tend to create a monopoly." 
C)  declared "unfair methods of competition in commerce" illegal. 
D)  attempted to decrease the failure rate of small businesses by protecting them from the competition of large and growing chain stores. 
E)  banned anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company.

Question 10

The statement,"Every person who shall monopolize,or attempt to monopolize,or combine or conspire with any other person or persons to monopolize any part of the trade or commerce...shall be guilty of a misdemeanor" is a part of the

Accepted Answer

A)  Clayton Act. 
B)  Robinson-Patman Act. 
C)  Sherman Act. 
D)  Wheeler-Lea Act. 
E)  none of the above 
A)  Clayton Act. 
B)  Robinson-Patman Act. 
C)  Sherman Act. 
D)  Wheeler-Lea Act. 
E)  none of the above

Question 11

A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly,rather than narrowly.

Accepted Answer

A) True 
 B)False

Question 12

Thomas Edison played a key role in putting together the Movie Trust which reportedly tried to eliminate competition in the early days of the movie industry.

Accepted Answer

A) True 
 B)False

Question 13

If government regulators guarantee that a natural monopoly will earn normal profits,then

Accepted Answer

A)  the monopolist has little or no incentive to hold down its costs. 
B)  the monopolist has a sharp incentive to hold down its costs so as to increase profits. 
C)  the monopolist will probably try its best to maintain its costs at the current level. 
D)  it is impossible to determine the monopolist's incentives regarding costs before the firm actually incurs some changes in its costs. 
A)  the monopolist has little or no incentive to hold down its costs. 
B)  the monopolist has a sharp incentive to hold down its costs so as to increase profits. 
C)  the monopolist will probably try its best to maintain its costs at the current level. 
D)  it is impossible to determine the monopolist's incentives regarding costs before the firm actually incurs some changes in its costs.

Question 14

Antitrust law is legislation passed for the stated purpose of

Accepted Answer

A)  reducing the profits of chain stores. 
B)  promoting U.S. banking practices in foreign countries. 
C)  controlling labor union practices in the states of New York, California, and Texas. 
D)  controlling monopoly power and preserving and promoting competition. 
E)  none of the above 
A)  reducing the profits of chain stores. 
B)  promoting U.S. banking practices in foreign countries. 
C)  controlling labor union practices in the states of New York, California, and Texas. 
D)  controlling monopoly power and preserving and promoting competition. 
E)  none of the above

Question 15

The Robinson-Patman Act of 1936 prohibited

Accepted Answer

A)  large retailers from selling at prices below those prices charged by small retailers. 
B)  large retailers from engaging in false and deceptive acts and practices. 
C)  suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D)  customers from seeking out the lowest-priced good from different retailers. 
E)  all of the above 
A)  large retailers from selling at prices below those prices charged by small retailers. 
B)  large retailers from engaging in false and deceptive acts and practices. 
C)  suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D)  customers from seeking out the lowest-priced good from different retailers. 
E)  all of the above

Question 16

The Justice Department considers a Herfindahl index less than __________ to be representative of an unconcentrated (competitive)industry.

Accepted Answer

A)  1,000 
B)  2,000 
C)  1,500 
D)  1,800 
A)  1,000 
B)  2,000 
C)  1,500 
D)  1,800

Question 17

Natural monopoly exists when

Accepted Answer

A)  one firm can supply the entire output demanded at lower cost than two or more firms can. 
B)  one firm can supply the entire output demanded at higher cost than two or more firms can. 
C)  one firm can supply the entire output demanded at the same cost as two or more firms. 
D)  one firm controls all of the rights to a scarce resource. 
A)  one firm can supply the entire output demanded at lower cost than two or more firms can. 
B)  one firm can supply the entire output demanded at higher cost than two or more firms can. 
C)  one firm can supply the entire output demanded at the same cost as two or more firms. 
D)  one firm controls all of the rights to a scarce resource.

Question 18

The Herfindahl index is obtained by

Accepted Answer

A)  adding the squares of the market shares of each firm in the industry. 
B)  adding the market shares of the largest four firms in the industry. 
C)  finding the difference between the squares of the market shares of each firm in the industry. 
D)  finding the difference between the market shares of each firm in the industry. 
E)  none of the above 
A)  adding the squares of the market shares of each firm in the industry. 
B)  adding the market shares of the largest four firms in the industry. 
C)  finding the difference between the squares of the market shares of each firm in the industry. 
D)  finding the difference between the market shares of each firm in the industry. 
E)  none of the above

Question 19

Exhibit 26-2
  
-Refer to Exhibit 26-2.The industry's Herfindahl index in Year 2 was

Accepted Answer

A)  3,400. 
B)  3,500. 
C)  3,600. 
D)  4,400. 
E)  4,500. 
A)  3,400. 
B)  3,500. 
C)  3,600. 
D)  4,400. 
E)  4,500.

Question 20

The existence of switching costs in the use of computer software means that buyers of computer software are __________ likely to change software programs than would be the case in the absence of switching costs,and therefore,the maker of the software program may have __________ reason to innovate.

Accepted Answer

A)  less; more 
B)  less; less 
C)  more; more 
D)  more; less 
A)  less; more 
B)  less; less 
C)  more; more 
D)  more; less

Exam 26: Government and Product Markets: Antitrust and Regulation

A network good is a good whose value decreases as the expected number of units sold increases.

The Herfindahl index

Economists assert that government regulation

If natural monopolies are regulated to produce where there is a normal profit,they produce where

Exhibit 26-5 -Refer to Exhibit 26-5.If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency,then it will produce __________ quantity of output and charge a price of __________ per unit.

Which of the following statements is false?

Natural monopolies exist because of

The Herfindahl index measures the

The Federal Trade Commission Act of 1914

The statement,"Every person who shall monopolize,or attempt to monopolize,or combine or conspire with any other person or persons to monopolize any part of the trade or commerce...shall be guilty of a misdemeanor" is a part of the

A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly,rather than narrowly.

Thomas Edison played a key role in putting together the Movie Trust which reportedly tried to eliminate competition in the early days of the movie industry.

If government regulators guarantee that a natural monopoly will earn normal profits,then

Antitrust law is legislation passed for the stated purpose of

The Robinson-Patman Act of 1936 prohibited

The Justice Department considers a Herfindahl index less than __________ to be representative of an unconcentrated (competitive)industry.

Natural monopoly exists when

The Herfindahl index is obtained by

Exhibit 26-2 -Refer to Exhibit 26-2.The industry's Herfindahl index in Year 2 was

The existence of switching costs in the use of computer software means that buyers of computer software are __________ likely to change software programs than would be the case in the absence of switching costs,and therefore,the maker of the software program may have __________ reason to innovate.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

Exhibit 26-5 -Refer to Exhibit 26-5.If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency,then it will produce quantity of output and charge a price of per unit.

The existence of switching costs in the use of computer software means that buyers of computer software are likely to change software programs than would be the case in the absence of switching costs,and therefore,the maker of the software program may have reason to innovate.