Question 1

"Regulatory lag" refers to the period between the time when

Accepted Answer

A)  the natural monopolist's costs change and the time the regulatory agency adjusts the monopolist's prices. 
B)  the natural monopolist changes its prices and the time when the regulatory agency rules on that change. 
C)  the regulatory agency decides to regulate a firm and the time it actually accomplishes the task. 
D)  a firm is initially regulated by an agency and the time the firm "captures" that agency. 
E)  the regulatory agency decides to deregulate a firm and the time it actually accomplishes the task. 
A)  the natural monopolist's costs change and the time the regulatory agency adjusts the monopolist's prices. 
B)  the natural monopolist changes its prices and the time when the regulatory agency rules on that change. 
C)  the regulatory agency decides to regulate a firm and the time it actually accomplishes the task. 
D)  a firm is initially regulated by an agency and the time the firm "captures" that agency. 
E)  the regulatory agency decides to deregulate a firm and the time it actually accomplishes the task.

Question 2

Exhibit 26-2
  
-Refer to Exhibit 26-2.The industry's Herfindahl index in Year 4 was

Accepted Answer

A)  2,000. 
B)  2,050. 
C)  2,150. 
D)  3,150. 
E)  1,000. 
A)  2,000. 
B)  2,050. 
C)  2,150. 
D)  3,150. 
E)  1,000.

Question 3

Modern Justice Department guidelines evaluate mergers according to how they would change the industry's

Accepted Answer

A)  Herfindahl index. 
B)  four-firm concentration ratio. 
C)  eight-firm concentration ratio. 
D)  twelve-firm concentration ratio. 
A)  Herfindahl index. 
B)  four-firm concentration ratio. 
C)  eight-firm concentration ratio. 
D)  twelve-firm concentration ratio.

Question 4

The type of merger most likely to reduce competition in an industry is a(n)__________ merger.

Accepted Answer

A)  horizontal 
B)  vertical 
C)  conglomerate 
D)  international 
A)  horizontal 
B)  vertical 
C)  conglomerate 
D)  international

Question 5

Which of the following lends support to the capture theory of regulation?

Accepted Answer

A)  Persons who have been in the industry will be asked to help regulate the industry. 
B)  There will be more people from the regulated industry at a regulatory hearing than people from the general public. 
C)  It is in the best interest of an industry that is being regulated to have its personnel develop social relationships with members of the regulatory agency. 
D)  all of the above 
A)  Persons who have been in the industry will be asked to help regulate the industry. 
B)  There will be more people from the regulated industry at a regulatory hearing than people from the general public. 
C)  It is in the best interest of an industry that is being regulated to have its personnel develop social relationships with members of the regulatory agency. 
D)  all of the above

Question 6

Exhibit 26-3
  
-Refer to Exhibit 26-3.If Firms J,K,and L were to merge,the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

Accepted Answer

A)  rise to 50 percent; rise to 1,062 
B)  rise to 28 percent; rise to 10,000 
C)  rise to 60 percent; fall to 986 
D)  rise to 59 percent; rise to 1,212 
E)  not be affected; not be affected 
A)  rise to 50 percent; rise to 1,062 
B)  rise to 28 percent; rise to 10,000 
C)  rise to 60 percent; fall to 986 
D)  rise to 59 percent; rise to 1,212 
E)  not be affected; not be affected

Question 7

Natural monopolies can be regulated based on price,profit,or output.

Accepted Answer

A) True 
 B)False

Question 8

The Wheeler-Lea Act of 1938

Accepted Answer

A)  made interlocking directorates illegal. 
B)  set up the Federal Trade Commission (FT
C)  to deal with "unfair methods of competition." 
C)  made monopolization of trade a misdemeanor. 
D)  prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else. 
E)  empowered the FTC to deal with false and deceptive acts or practices. 
A)  made interlocking directorates illegal. 
B)  set up the Federal Trade Commission (FT
C)  to deal with "unfair methods of competition." 
C)  made monopolization of trade a misdemeanor. 
D)  prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else. 
E)  empowered the FTC to deal with false and deceptive acts or practices.

Question 9

What is the Herfindahl index of an industry made up of four equal-sized firms?

Accepted Answer

A)  1,667 
B)  2,500 
C)  2,250 
D)  125 
E)  This cannot be determined without further information. 
A)  1,667 
B)  2,500 
C)  2,250 
D)  125 
E)  This cannot be determined without further information.

Question 10

How does the four-firm concentration ratio differ from the Herfindahl index? Which one does the Justice Department currently rely on when evaluating whether or not a proposed merger should be permitted?

Accepted Answer

The four-firm concentration ratio shows

Question 11

Which of the following was declared illegal by the Sherman Act of 1890?

Accepted Answer

A)  a conspiracy in restraint of trade 
B)  price discrimination 
C)  tying contracts 
D)  interlocking directorates 
A)  a conspiracy in restraint of trade 
B)  price discrimination 
C)  tying contracts 
D)  interlocking directorates

Question 12

The public interest theory of regulation holds that

Accepted Answer

A)  regulators are seeking to do and will do through regulation what is in the best interest of the public or society at large. 
B)  even though regulators seek to do what is in the best interest of the public at large, through regulation they end up doing what is in the best interest of the special interests of the industry that is being regulated. 
C)  even though regulators seek to do what is in the best interest of special interests of the industry that is being regulated, through regulation they end up doing what is in the best interest of the public at large. 
D)  regulators are seeking to do and will do through regulation what is in the best interest of the special interests of the industry that is being regulated. 
A)  regulators are seeking to do and will do through regulation what is in the best interest of the public or society at large. 
B)  even though regulators seek to do what is in the best interest of the public at large, through regulation they end up doing what is in the best interest of the special interests of the industry that is being regulated. 
C)  even though regulators seek to do what is in the best interest of special interests of the industry that is being regulated, through regulation they end up doing what is in the best interest of the public at large. 
D)  regulators are seeking to do and will do through regulation what is in the best interest of the special interests of the industry that is being regulated.

Question 13

The capture theory of regulation holds that

Accepted Answer

A)  regulators try to capture as much "profit" (for themselves) from the regulatory process as possible. 
B)  the special interests that are being regulated will eventually capture and control the regulatory body that "regulates" them. 
C)  the public usually captures the regulatory body and makes it do what it wants. 
D)  the courts usually capture the regulatory body and force it to do what is in the public's best interest. 
E)  none of the above 
A)  regulators try to capture as much "profit" (for themselves) from the regulatory process as possible. 
B)  the special interests that are being regulated will eventually capture and control the regulatory body that "regulates" them. 
C)  the public usually captures the regulatory body and makes it do what it wants. 
D)  the courts usually capture the regulatory body and force it to do what is in the public's best interest. 
E)  none of the above

Question 14

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

Accepted Answer

A)  has no incentive to hold costs down. 
B)  must bear losses continually. 
C)  will retain positive economic profits. 
D)  produces more output than is resource-allocative efficient. 
A)  has no incentive to hold costs down. 
B)  must bear losses continually. 
C)  will retain positive economic profits. 
D)  produces more output than is resource-allocative efficient.

Question 15

The type of proposed merger that generally concerns the federal government the most is a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 26-5
  
-Refer to Exhibit 26-5.If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)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; P2 
E)  none of the above 
A)  Q1; P3 
B)  Q1; P2 
C)  Q2; P3 
D)  Q3; P2 
E)  none of the above

Question 17

A network good is one whose value

Accepted Answer

A)  increases as the expected number of units sold increases. 
B)  was created by the Internet. 
C)  is dependent upon interconnection to another good. 
D)  is defined by its links to other markets. 
A)  increases as the expected number of units sold increases. 
B)  was created by the Internet. 
C)  is dependent upon interconnection to another good. 
D)  is defined by its links to other markets.

Question 18

The profit-maximizing natural monopoly will

Accepted Answer

A)  set price equal to marginal cost. 
B)  produce the quantity of output at which MR = MC. 
C)  charge the highest price per unit for the quantity of output it chooses to produce. 
D)  necessarily face higher production costs if it is unregulated than if it is regulated. 
E)  b and c 
A)  set price equal to marginal cost. 
B)  produce the quantity of output at which MR = MC. 
C)  charge the highest price per unit for the quantity of output it chooses to produce. 
D)  necessarily face higher production costs if it is unregulated than if it is regulated. 
E)  b and c

Question 19

Exhibit 26-4
  
-Refer to Exhibit 26-4.What is the total revenue of the profit-maximizing natural monopoly?

Accepted Answer

A)  P1 x Q1 
B)  P2 x Q2. 
C)  P5 x Q1 
D)  P2 x Q2.. 
E)  P3 x Q3. 
A)  P1 x Q1 
B)  P2 x Q2. 
C)  P5 x Q1 
D)  P2 x Q2.. 
E)  P3 x Q3.

Question 20

If government regulators guarantee a natural monopolist that it will earn normal profits,then the monopolist will

Accepted Answer

A)  achieve resource-allocative efficiency. 
B)  charge a price above average total cost. 
C)  produce a quantity of output at which marginal revenue equals price. 
D)  none of the above 
A)  achieve resource-allocative efficiency. 
B)  charge a price above average total cost. 
C)  produce a quantity of output at which marginal revenue equals price. 
D)  none of the above

Exam 26: Government and Product Markets: Antitrust and Regulation

"Regulatory lag" refers to the period between the time when

Exhibit 26-2 -Refer to Exhibit 26-2.The industry's Herfindahl index in Year 4 was

Modern Justice Department guidelines evaluate mergers according to how they would change the industry's

The type of merger most likely to reduce competition in an industry is a(n)__________ merger.

Which of the following lends support to the capture theory of regulation?

Exhibit 26-3 -Refer to Exhibit 26-3.If Firms J,K,and L were to merge,the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

Natural monopolies can be regulated based on price,profit,or output.

The Wheeler-Lea Act of 1938

What is the Herfindahl index of an industry made up of four equal-sized firms?

How does the four-firm concentration ratio differ from the Herfindahl index? Which one does the Justice Department currently rely on when evaluating whether or not a proposed merger should be permitted?

Which of the following was declared illegal by the Sherman Act of 1890?

The public interest theory of regulation holds that

The capture theory of regulation holds that

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

The type of proposed merger that generally concerns the federal government the most is a horizontal merger.

Exhibit 26-5 -Refer to Exhibit 26-5.If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)then it will produce __________ quantity of output and charge a price of __________ per unit.

A network good is one whose value

The profit-maximizing natural monopoly will

Exhibit 26-4 -Refer to Exhibit 26-4.What is the total revenue of the profit-maximizing natural monopoly?

If government regulators guarantee a natural monopolist that it will earn normal profits,then the monopolist will

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 26-3 -Refer to Exhibit 26-3.If Firms J,K,and L were to merge,the four-firm concentration ratio would and the Herfindahl Index would _.

Exhibit 26-5 -Refer to Exhibit 26-5.If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)then it will produce quantity of output and charge a price of per unit.