Question 1

The Herfindahl index for a monopoly is 1,000.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 26-2
  
-Refer to Exhibit 26-2.The four-firm concentration ratio in Year 2 was

Accepted Answer

A)  90 percent. 
B)  95 percent. 
C)  70 percent. 
D)  100 percent. 
E)  This cannot be determined from the given data. 
A)  90 percent. 
B)  95 percent. 
C)  70 percent. 
D)  100 percent. 
E)  This cannot be determined from the given data.

Question 3

Exhibit 26-3
  
-Refer to Exhibit 26-3.The Herfindahl Index for this industry is currently

Accepted Answer

A)  996. 
B)  1,062. 
C)  1,800. 
D)  1,980. 
E)  10,000. 
A)  996. 
B)  1,062. 
C)  1,800. 
D)  1,980. 
E)  10,000.

Question 4

If two firms in the same industry (but at different stages of the production process)merged,this would be a(n)__________ merger.

Accepted Answer

A)  vertical 
B)  conglomerate 
C)  horizontal 
D)  antitrust 
E)  none of the above 
A)  vertical 
B)  conglomerate 
C)  horizontal 
D)  antitrust 
E)  none of the above

Question 5

If I have the only telephone in town,it is essentially worthless.Then other people in town get telephones and I can call them.The value of my telephone rises as more and more of the town installs phones.This makes the telephone a(n)__________ good.

Accepted Answer

A)  Internet 
B)  intermediary 
C)  network 
D)  connectivity 
A)  Internet 
B)  intermediary 
C)  network 
D)  connectivity

Question 6

The monopoly power problem is that a monopoly

Accepted Answer

A)  produces a smaller output than that produced by a perfectly competitive firm. 
B)  charges a higher price than the price a perfectly competitive firm would charge. 
C)  creates a deadweight loss to society. 
D)  a and b 
E)  a, b, and c 
A)  produces a smaller output than that produced by a perfectly competitive firm. 
B)  charges a higher price than the price a perfectly competitive firm would charge. 
C)  creates a deadweight loss to society. 
D)  a and b 
E)  a, b, and c

Question 7

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. 
B)  over time, natural monopolies will wither away. 
C)  regulators are uninformed on specific matters that relate to regulation and therefore are often swayed by false information. 
D)  natural monopolies manipulate the public into buying particular products. 
A)  regulators are seeking to do and will do through regulation what is in the best interest of the public. 
B)  over time, natural monopolies will wither away. 
C)  regulators are uninformed on specific matters that relate to regulation and therefore are often swayed by false information. 
D)  natural monopolies manipulate the public into buying particular products.

Question 8

If average total costs for a natural monopoly are declining where they intersect the demand curve,and government regulators set the price equal to marginal cost,then the firm will

Accepted Answer

A)  likely earn a profit. 
B)  likely break even. 
C)  likely suffer a loss. 
D)  surely go out of business. 
E)  There is not enough information to answer this question. 
A)  likely earn a profit. 
B)  likely break even. 
C)  likely suffer a loss. 
D)  surely go out of business. 
E)  There is not enough information to answer this question.

Question 9

Large firms may be more likely to innovate because

Accepted Answer

A)  the risks of failure are less to them than to small firms. 
B)  they can attract the capital needed more easily. 
C)  they can more easily attract the scientists and engineering staff they need. 
D)  a, b and c 
A)  the risks of failure are less to them than to small firms. 
B)  they can attract the capital needed more easily. 
C)  they can more easily attract the scientists and engineering staff they need. 
D)  a, b and c

Question 10

Exhibit 26-1
  
-Refer to Exhibit 26-1.What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm?

Accepted Answer

A)  P1 
B)  P2 
C)  P3 
D)  a price below P2 and above P1 
A)  P1 
B)  P2 
C)  P3 
D)  a price below P2 and above P1

Question 11

If the four-firm concentration ratio in an industry is 80 percent,and the top four firms hold equal market shares,the Herfindahl index for the industry is

Accepted Answer

A)  1,600. 
B)  2,000. 
C)  3,200. 
D)  6,400. 
E)  There is not enough information provided to answer this question. 
A)  1,600. 
B)  2,000. 
C)  3,200. 
D)  6,400. 
E)  There is not enough information provided to answer this question.

Question 12

The Wheeler-Lea Act of 1938 was designed to close the merger loophole that remained in the Clayton Act.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 26-3
  
-Refer to Exhibit 26-3.The Justice Department would consider this industry to be

Accepted Answer

A)  concentrated, because the top four firms together control more than 50 percent of the market share. 
B)  concentrated, because there are fewer than 15 firms in the industry. 
C)  unconcentrated, because there are more than 10 firms in the industry. 
D)  moderately concentrated, because the Herfindahl index is between 1,000 and 1,800. 
E)  unconcentrated, because the Herfindahl index is less than 1,000. 
A)  concentrated, because the top four firms together control more than 50 percent of the market share. 
B)  concentrated, because there are fewer than 15 firms in the industry. 
C)  unconcentrated, because there are more than 10 firms in the industry. 
D)  moderately concentrated, because the Herfindahl index is between 1,000 and 1,800. 
E)  unconcentrated, because the Herfindahl index is less than 1,000.

Question 14

The Justice Department most closely examines proposed __________ mergers.

Accepted Answer

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

Question 15

If an industry consists of 20 firms holding equal market shares,the Herfindahl index is

Accepted Answer

A)  500. 
B)  400. 
C)  1,800. 
D)  2,500. 
E)  This cannot be determined without further information. 
A)  500. 
B)  400. 
C)  1,800. 
D)  2,500. 
E)  This cannot be determined without further information.

Question 16

Which of the following is usually considered a natural monopoly?

Accepted Answer

A)  a major car manufacturer 
B)  a car stereo installer 
C)  overnight mail services 
D)  state universities 
E)  none of the above 
A)  a major car manufacturer 
B)  a car stereo installer 
C)  overnight mail services 
D)  state universities 
E)  none of the above

Question 17

Exhibit 26-2
  
-Refer to Exhibit 26-2.The industry's Herfindahl index in Year 5 was

Accepted Answer

A)  2,000. 
B)  3,000. 
C)  4,000. 
D)  1,000. 
E)  5,000. 
A)  2,000. 
B)  3,000. 
C)  4,000. 
D)  1,000. 
E)  5,000.

Question 18

"Exclusive dealing" refers to

Accepted Answer

A)  charging one customer a higher price than another customer for the same good. 
B)  the condition that is necessary before a conglomerate merger is likely to be successful. 
C)  a provision of the Sherman Act. 
D)  selling to a retailer on the condition that the retailer not carry any rival products. 
E)  none of the above 
A)  charging one customer a higher price than another customer for the same good. 
B)  the condition that is necessary before a conglomerate merger is likely to be successful. 
C)  a provision of the Sherman Act. 
D)  selling to a retailer on the condition that the retailer not carry any rival products. 
E)  none of the above

Question 19

Suppose an industry consists of five equal-sized firms.Two of the firms plan to merge.The merger ______________ raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was _____________ and the merger would cause the Herfindahl index to rise by __________.

Accepted Answer

A)  would; between 1,000 and 1,800; more than 100 
B)  would; greater than 1,800; more than 100 
C)  would not; less than 1,000; less than 300 
D)  would not; between 1,000 and 1,800; less than 100 
A)  would; between 1,000 and 1,800; more than 100 
B)  would; greater than 1,800; more than 100 
C)  would not; less than 1,000; less than 300 
D)  would not; between 1,000 and 1,800; less than 100

Question 20

The Robinson-Patman Act of 1936

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.

Exam 26: Government and Product Markets: Antitrust and Regulation

The Herfindahl index for a monopoly is 1,000.

Exhibit 26-2 -Refer to Exhibit 26-2.The four-firm concentration ratio in Year 2 was

Exhibit 26-3 -Refer to Exhibit 26-3.The Herfindahl Index for this industry is currently

If two firms in the same industry (but at different stages of the production process)merged,this would be a(n)__________ merger.

If I have the only telephone in town,it is essentially worthless.Then other people in town get telephones and I can call them.The value of my telephone rises as more and more of the town installs phones.This makes the telephone a(n)__________ good.

The monopoly power problem is that a monopoly

The public interest theory of regulation holds that

If average total costs for a natural monopoly are declining where they intersect the demand curve,and government regulators set the price equal to marginal cost,then the firm will

Large firms may be more likely to innovate because

Exhibit 26-1 -Refer to Exhibit 26-1.What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm?

If the four-firm concentration ratio in an industry is 80 percent,and the top four firms hold equal market shares,the Herfindahl index for the industry is

The Wheeler-Lea Act of 1938 was designed to close the merger loophole that remained in the Clayton Act.

Exhibit 26-3 -Refer to Exhibit 26-3.The Justice Department would consider this industry to be

The Justice Department most closely examines proposed __________ mergers.

If an industry consists of 20 firms holding equal market shares,the Herfindahl index is

Which of the following is usually considered a natural monopoly?

Exhibit 26-2 -Refer to Exhibit 26-2.The industry's Herfindahl index in Year 5 was

"Exclusive dealing" refers to

The Robinson-Patman Act of 1936

What Economics Is About

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