Question 1

If a firm's average total cost is less than price where MR = MC

Accepted Answer

A)  the firm should shut down. 
B)  the firm should raise its price. 
C)  the firm should continue to produce the output it is producing. 
D)  the firm should cut back on its output to lower its cost. 
A)  the firm should shut down. 
B)  the firm should raise its price. 
C)  the firm should continue to produce the output it is producing. 
D)  the firm should cut back on its output to lower its cost.

Question 2

Although some economists believe network externalities are important barriers to entry, other economists disagree because

Accepted Answer

A)  they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of the efficiency of firms in offering products that satisfy consumer preferences. 
B)  they believe that most examples of network externalities are really barriers to entry caused by the control of a key resource. 
C)  network externalities are really negative externalities. 
D)  they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of economies of scale. 
A)  they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of the efficiency of firms in offering products that satisfy consumer preferences. 
B)  they believe that most examples of network externalities are really barriers to entry caused by the control of a key resource. 
C)  network externalities are really negative externalities. 
D)  they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of economies of scale.

Question 3

Local or state offices of the Department of Justice usually set prices for natural monopolies in their jurisdictions.

Accepted Answer

A) True 
 B)False

Question 4

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?

Accepted Answer

A)  A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good. 
B)  A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good. 
C)  A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good. 
D)  A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good. 
A)  A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good. 
B)  A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good. 
C)  A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good. 
D)  A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

Question 5

The U.S. Congress has given two government entities the authority to police mergers. These two entities are

Accepted Answer

A)  the antitrust division of the Department of State and the Securities and Exchange Commission. 
B)  the Federal Trade Commission and the Internal Revenue Service. 
C)  the Antitrust Division of the U.S. Department of Justice and the Council of Economic Advisors. 
D)  the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice. 
A)  the antitrust division of the Department of State and the Securities and Exchange Commission. 
B)  the Federal Trade Commission and the Internal Revenue Service. 
C)  the Antitrust Division of the U.S. Department of Justice and the Council of Economic Advisors. 
D)  the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.

Question 6

To be a natural monopoly, a firm must

Accepted Answer

A)  control a key resource input. 
B)  have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms. 
C)  have significant network externalities. 
D)  be in a government-regulated market. 
A)  control a key resource input. 
B)  have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms. 
C)  have significant network externalities. 
D)  be in a government-regulated market.

Question 7

Figure 15-3   Figure 15-3 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?

Accepted Answer

A)  630 units 
B)  800 units 
C)  850 units 
D)  880 units 
A)  630 units 
B)  800 units 
C)  850 units 
D)  880 units

Question 8

Which of the following statements is consistent with the views of Joseph Schumpeter?

Accepted Answer

A)  Research and development by competitive firms is responsible for most technological changes. 
B)  An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development. 
C)  Enforcement of antitrust laws is necessary to promote competition among firms. 
D)  A lack of competition discourages firms from developing new technologies. 
A)  Research and development by competitive firms is responsible for most technological changes. 
B)  An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development. 
C)  Enforcement of antitrust laws is necessary to promote competition among firms. 
D)  A lack of competition discourages firms from developing new technologies.

Question 9

One reason patent protection is vitally important to pharmaceutical firms is

Accepted Answer

A)  successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs. 
A)  successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.

Question 10

What is a network externality?

Accepted Answer

A)  It refers to having a network of suppliers and buyers for a good or service. 
B)  It refers to lobbying to form a public enterprise. 
C)  It refers to a situation in which a product's usefulness increases with the number of people using it. 
D)  It refers to a product that requires connection to a network for it to be useful. 
A)  It refers to having a network of suppliers and buyers for a good or service. 
B)  It refers to lobbying to form a public enterprise. 
C)  It refers to a situation in which a product's usefulness increases with the number of people using it. 
D)  It refers to a product that requires connection to a network for it to be useful.

Question 11

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?

Accepted Answer

A)  because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed 
B)  because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly 
C)  because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power 
D)  because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price 
A)  because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed 
B)  because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly 
C)  because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power 
D)  because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price

Question 12

A product's price approaches its marginal cost as market concentration increases.

Accepted Answer

A) True 
 B)False

Question 13

Figure 15-9   Figure 15-9 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

Accepted Answer

A)  The monopoly's price is higher by $9.50. 
B)  The monopoly's price is higher by $13. 
C)  The monopoly's price is higher by $3.50. 
D)  The monopoly's price is higher by $21. 
A)  The monopoly's price is higher by $9.50. 
B)  The monopoly's price is higher by $13. 
C)  The monopoly's price is higher by $3.50. 
D)  The monopoly's price is higher by $21.

Question 14

Why are laws aimed at regulating monopolies called "antitrust" laws?

Accepted Answer

A)  The rise of large firms (e.g., Standard Oil) in the late 1800s in the United States caused consumers to lose trust in private business. 
B)  "Trust" was a word in Old English that meant monopoly in the Middle Ages. Therefore, "antitrust" is a term that means "against monopoly." 
C)  In the late 1800s, firms in several industries formed trusts; the firms were independent but gave voting control to a board of trustees. Antitrust laws were passed to regulate these trusts. 
D)  In the late 1800s, firms in several industries formed trusts; they were called "trusts" because when corporate officials were questioned about their business they would clam that business was good for the country and that they should trusted. 
A)  The rise of large firms (e.g., Standard Oil) in the late 1800s in the United States caused consumers to lose trust in private business. 
B)  "Trust" was a word in Old English that meant monopoly in the Middle Ages. Therefore, "antitrust" is a term that means "against monopoly." 
C)  In the late 1800s, firms in several industries formed trusts; the firms were independent but gave voting control to a board of trustees. Antitrust laws were passed to regulate these trusts. 
D)  In the late 1800s, firms in several industries formed trusts; they were called "trusts" because when corporate officials were questioned about their business they would clam that business was good for the country and that they should trusted.

Question 15

Explain whether a monopoly that maximizes profit will also be maximizing revenue and production.

Accepted Answer

Profit maximization is not the same thin

Question 16

If a monopolist's price is $50 at 63 units of output and average total cost equals $43, then the firm's total profit is

Accepted Answer

A)  $3,150. 
B)  $2,709. 
C)  $441. 
D)  $7. 
A)  $3,150. 
B)  $2,709. 
C)  $441. 
D)  $7.

Question 17

Figure 15-2   Figure 15-2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 15-2. If the firm's average total cost curve is ATC1, the firm will

Accepted Answer

A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition. 
A)  suffer a loss. 
B)  break even. 
C)  make a profit. 
D)  face competition.

Question 18

Congress has divided the authority to police mergers between the Antitrust Division of the U.S. Department of Justice (AD) and the Federal Trade Commission (FTC). How is this authority divided?

Accepted Answer

A)  The AD decides whether proposed horizontal mergers will be challenged; the FTC decides whether proposed vertical mergers will be challenged. 
B)  Both the AD and the FTC are responsible for merger policy. 
C)  The AD always renders its opinion on any proposed merger first. If the AD approves the merger, the case then goes to the FTC for final approval. If the AD disallows the merger, the decision stands and the FTC does not become involved. 
D)  The AD establishes the guidelines that are used to evaluate proposed mergers; the FTC uses these guidelines to decide whether a proposed merger will be allowed to take place. 
A)  The AD decides whether proposed horizontal mergers will be challenged; the FTC decides whether proposed vertical mergers will be challenged. 
B)  Both the AD and the FTC are responsible for merger policy. 
C)  The AD always renders its opinion on any proposed merger first. If the AD approves the merger, the case then goes to the FTC for final approval. If the AD disallows the merger, the decision stands and the FTC does not become involved. 
D)  The AD establishes the guidelines that are used to evaluate proposed mergers; the FTC uses these guidelines to decide whether a proposed merger will be allowed to take place.

Question 19

A horizontal merger

Accepted Answer

A)  is a merger between firms in the same industry. 
B)  results in a trust (for example, the Standard Oil Company). 
C)  is a merger between firms at different stages of production of a good. 
D)  was illegal in the United States until the Federal Trade Commission Act was passed by Congress in 1914. 
A)  is a merger between firms in the same industry. 
B)  results in a trust (for example, the Standard Oil Company). 
C)  is a merger between firms at different stages of production of a good. 
D)  was illegal in the United States until the Federal Trade Commission Act was passed by Congress in 1914.

Question 20

Figure 15-17   Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 15-17. The faculty member who designed the course argues: "I think the course should be priced so that the maximum number of students enroll." Which price should this faculty member favor?

Accepted Answer

A)  $0 
B)  $40 
C)  $88 
D)  $150 
A)  $0 
B)  $40 
C)  $88 
D)  $150

Exam 15: Monopoly and Antitrust Policy

If a firm's average total cost is less than price where MR = MC

Although some economists believe network externalities are important barriers to entry, other economists disagree because

Local or state offices of the Department of Justice usually set prices for natural monopolies in their jurisdictions.

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?

The U.S. Congress has given two government entities the authority to police mergers. These two entities are

To be a natural monopoly, a firm must

Figure 15-3 Figure 15-3 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?

Which of the following statements is consistent with the views of Joseph Schumpeter?

One reason patent protection is vitally important to pharmaceutical firms is

What is a network externality?

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?

A product's price approaches its marginal cost as market concentration increases.

Figure 15-9 Figure 15-9 shows the demand and cost curves for a monopolist. -Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

Why are laws aimed at regulating monopolies called "antitrust" laws?

Explain whether a monopoly that maximizes profit will also be maximizing revenue and production.

If a monopolist's price is $50 at 63 units of output and average total cost equals $43, then the firm's total profit is

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. If the firm's average total cost curve is ATC1, the firm will

Congress has divided the authority to police mergers between the Antitrust Division of the U.S. Department of Justice (AD) and the Federal Trade Commission (FTC). How is this authority divided?

A horizontal merger

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Figure 15-2 Figure 15-2 above shows the demand and cost curves facing a monopolist. -Refer to Figure 15-2. If the firm's average total cost curve is ATC₁, the firm will