Question 1

Why,in recent years,have many potential mergers never even proposed? Give three reasons why the government has been lenient in interpreting anti-trust laws.

Accepted Answer

A century-worth of experience has taught

Question 2

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it raises price from P2 to P1, its rival will not go along, then:

Accepted Answer

A) the demand curve used by the firm for decision making is highly inelastic. 
B) it probably won't raise price, since doing so would cause sales to drop from Q3 to Q1. 
C) it probably will raise price, since lower output means lower costs and greater profit. 
D) D2 is the relevant demand curve. 
A) the demand curve used by the firm for decision making is highly inelastic. 
B) it probably won't raise price, since doing so would cause sales to drop from Q3 to Q1. 
C) it probably will raise price, since lower output means lower costs and greater profit. 
D) D2 is the relevant demand curve.

Question 3

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it lowers price from P2 to P4, its rival will match the price cut, then:

Accepted Answer

A) the demand curve used by the firm for decision making is highly elastic. 
B) it probably will lower price, since doing so will increase sales. 
C) it probably won't lower price, since the percentage decline in price will exceed the percentage increase in quantity sold. 
D) D1 is the relevant demand curve. 
A) the demand curve used by the firm for decision making is highly elastic. 
B) it probably will lower price, since doing so will increase sales. 
C) it probably won't lower price, since the percentage decline in price will exceed the percentage increase in quantity sold. 
D) D1 is the relevant demand curve.

Question 4

According to contestable market theory:

Accepted Answer

A) barriers to entry are much more important than market structure in determining the degree of price competition in an industry. 
B) barriers to entry are much less important than market structure in determining the degree of price competition in an industry. 
C) barriers to entry and market structure are both important in determining the degree of price competition in an industry. 
D) neither barriers to entry nor market structure affects the degree of price competition in an industry. 
A) barriers to entry are much more important than market structure in determining the degree of price competition in an industry. 
B) barriers to entry are much less important than market structure in determining the degree of price competition in an industry. 
C) barriers to entry and market structure are both important in determining the degree of price competition in an industry. 
D) neither barriers to entry nor market structure affects the degree of price competition in an industry.

Question 5

Which of the following market structures is characterized by interdependent pricing and output decisions?

Accepted Answer

A) Monopoly 
B) Oligopoly 
C) Monopolistic competition 
D) Perfect competition 
A) Monopoly 
B) Oligopoly 
C) Monopolistic competition 
D) Perfect competition

Question 6

Firms base decisions on the decisions of other firms in the market in:

Accepted Answer

A) a monopolistic industry. 
B) an oligopolistic industry. 
C) a monopolistically competitive industry. 
D) a perfectly competitive industry. 
A) a monopolistic industry. 
B) an oligopolistic industry. 
C) a monopolistically competitive industry. 
D) a perfectly competitive industry.

Question 7

A problem in using the judgment by market structure criterion is that:

Accepted Answer

A) each action of a firm must be analyzed separately and within a particular context. 
B) it is difficult to determine the relevant industry and geographic market. 
C) it is an expensive and time-consuming standard. 
D) it is the most subjective standard. 
A) each action of a firm must be analyzed separately and within a particular context. 
B) it is difficult to determine the relevant industry and geographic market. 
C) it is an expensive and time-consuming standard. 
D) it is the most subjective standard.

Question 8

One of the reasons fewer antitrust cases have been brought before the courts is:

Accepted Answer

A) input prices have fallen significantly. 
B) the United States is engaged in more trade wars. 
C) the rate of technological change has accelerated. 
D) firms have become increasingly larger. 
A) input prices have fallen significantly. 
B) the United States is engaged in more trade wars. 
C) the rate of technological change has accelerated. 
D) firms have become increasingly larger.

Question 9

An industry in which 5 firms each have a 10 percent market share and 50 firms each have a 1 percent market share will have a Herfindahl index equal to:

Accepted Answer

A) 500. 
B) 550. 
C) 1,100. 
D) 1,500. 
A) 500. 
B) 550. 
C) 1,100. 
D) 1,500.

Question 10

Under oligopoly:

Accepted Answer

A) there are many sellers in the industry. 
B) there are only a few sellers in the industry. 
C) the demand for each firm's output is perfectly elastic. 
D) there are no barriers to entry. 
A) there are many sellers in the industry. 
B) there are only a few sellers in the industry. 
C) the demand for each firm's output is perfectly elastic. 
D) there are no barriers to entry.

Question 11

To measure industry structure economists use the concentration ratio and the Herfindahl index.Describe each of these indexes.How is the Herfindahl index used in determining public policy? Why is the Herfindahl index the preferred index of market concentration in setting government policy?

Accepted Answer

A concentration ratio is the value of sa

Question 12

Refer to the table above. Using the four-firm concentration ratio, the upholstered furniture industry is best categorized as: $$\begin{array} { | c | c | c | } 
\hline \text { Industry } & \begin{array} { c } 
\text { Number of } \
\text { sellers }
\end{array} & \begin{array} { c } 
\text { \% of shipments accuunted far by the } 4 \
\text { larget comnanies }
\end{array} \
\hline \text { Tires } & 15 & 95 \
\hline \begin{array} { c } 
\text { Upholstered } \
\text { furniture }
\end{array} & 2,000 & 15 \
\hline
\end{array}$$

Accepted Answer

A) perfectly competitive. 
B) a pure monopoly. 
C) monopolistically competitive. 
D) oligopolistic. 
A) perfectly competitive. 
B) a pure monopoly. 
C) monopolistically competitive. 
D) oligopolistic.

Question 13

Explain the difference between the judgment by performance and the judgment by structure methods of assessing competition.

Accepted Answer

Judgment by performance means we should

Question 14

The contestable market model of oligopoly bases pricing and output decisions on:

Accepted Answer

A) the threat of new entrants into the market. 
B) market structure. 
C) the degree of product differentiation. 
D) market share. 
A) the threat of new entrants into the market. 
B) market structure. 
C) the degree of product differentiation. 
D) market share.

Question 15

To be successful in increasing prices for their product, members of a cartel:

Accepted Answer

A) do not talk to one another. 
B) limit output. 
C) encourage entry. 
D) engage in predatory pricing. 
A) do not talk to one another. 
B) limit output. 
C) encourage entry. 
D) engage in predatory pricing.

Question 16

The top four firms in the industry have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl index of this market is closest to which of the following?

Accepted Answer

A) 8 
B) 32 
C) 66 
D) 264 
A) 8 
B) 32 
C) 66 
D) 264

Question 17

Both structure and performance criteria have ambiguities,and in the real world there are no definitive criteria for judging whether a firm has violated the antitrust statutes.Explain.

Accepted Answer

The source of ambiguity is the fact that

Question 18

The difference between a three-digit North American Industry Classification System (NAICS)industry and a six-digit NAICS industry is that:

Accepted Answer

A) the three-digit industry is more specifically defined than the six-digit code. 
B) the six-digit industry is more specifically defined than the three-digit code. 
C) three-digit codes apply to a different set of industries than six-digit codes. 
D) three-digit codes are used to classify industries whereas six-digit codes are used to classify firms. 
A) the three-digit industry is more specifically defined than the six-digit code. 
B) the six-digit industry is more specifically defined than the three-digit code. 
C) three-digit codes apply to a different set of industries than six-digit codes. 
D) three-digit codes are used to classify industries whereas six-digit codes are used to classify firms.

Question 19

Network externalities create a push toward:

Accepted Answer

A) natural monopoly. 
B) government deregulation. 
C) foreign competition. 
D) perfect competition. 
A) natural monopoly. 
B) government deregulation. 
C) foreign competition. 
D) perfect competition.

Question 20

In a contestable market model of oligopoly, prices are determined by:

Accepted Answer

A) costs and barriers to exit. 
B) costs and barriers to entry. 
C) costs, barriers to entry, and barriers to exit. 
D) costs alone. 
A) costs and barriers to exit. 
B) costs and barriers to entry. 
C) costs, barriers to entry, and barriers to exit. 
D) costs alone.

Exam 15: Oligopoly and Antitrust Policy

Why,in recent years,have many potential mergers never even proposed? Give three reasons why the government has been lenient in interpreting anti-trust laws.

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it raises price from P2 to P1, its rival will not go along, then:

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it lowers price from P2 to P4, its rival will match the price cut, then:

According to contestable market theory:

Which of the following market structures is characterized by interdependent pricing and output decisions?

Firms base decisions on the decisions of other firms in the market in:

A problem in using the judgment by market structure criterion is that:

One of the reasons fewer antitrust cases have been brought before the courts is:

An industry in which 5 firms each have a 10 percent market share and 50 firms each have a 1 percent market share will have a Herfindahl index equal to:

Under oligopoly:

To measure industry structure economists use the concentration ratio and the Herfindahl index.Describe each of these indexes.How is the Herfindahl index used in determining public policy? Why is the Herfindahl index the preferred index of market concentration in setting government policy?

Refer to the table above. Using the four-firm concentration ratio, the upholstered furniture industry is best categorized as: Industry Number of sellers \% of shipments accuunted far by the 4 larget comnanies Tires 15 95 Upholstered furniture 2,000 15

Explain the difference between the judgment by performance and the judgment by structure methods of assessing competition.

The contestable market model of oligopoly bases pricing and output decisions on:

To be successful in increasing prices for their product, members of a cartel:

The top four firms in the industry have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl index of this market is closest to which of the following?

Both structure and performance criteria have ambiguities,and in the real world there are no definitive criteria for judging whether a firm has violated the antitrust statutes.Explain.

The difference between a three-digit North American Industry Classification System (NAICS)industry and a six-digit NAICS industry is that:

Network externalities create a push toward:

In a contestable market model of oligopoly, prices are determined by:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it raises price from P₂ to P₁, its rival will not go along, then:

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it lowers price from P₂ to P₄, its rival will match the price cut, then: