Question 1

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Accepted Answer

A network externality exists where the u

Question 2

For decades, the NCAA restricted the number of college football and basketball games that could be televised, and in 1982 the University of Georgia and the University of Oklahoma sued the NCAA under the federal antitrust laws. In 1984, the Supreme Court decided the case

Accepted Answer

A)  for the NCAA, citing the fact that belonging to the NCAA was voluntary. 
B)  against the NCAA, citing that the NCAA did not control what television networks put on the air. 
C)  against the NCAA, citing anticompetitive practice. 
D)  against the NCAA, citing explicit collusion among the larger colleges. 
A)  for the NCAA, citing the fact that belonging to the NCAA was voluntary. 
B)  against the NCAA, citing that the NCAA did not control what television networks put on the air. 
C)  against the NCAA, citing anticompetitive practice. 
D)  against the NCAA, citing explicit collusion among the larger colleges.

Question 3

Consider the following characteristics: 
a. a market structure with barriers to entry
b. demand curves that are easily identified
c. firm cannot make zero profits in the long run
d. firm can reap long-run profits.
Which of the characteristics in the list above is shared by an oligopolist and a monopolist?

Accepted Answer

A)  a, b, c, and d 
B)  a, b, and d 
C)  a, c, and d 
D)  a and d 
A)  a, b, c, and d 
B)  a, b, and d 
C)  a, c, and d 
D)  a and d

Question 4

When the government makes a firm the exclusive legal provider of a good or service, it grants the firm

Accepted Answer

A)  a copyright. 
B)  a network externality. 
C)  a quota. 
D)  a public franchise. 
A)  a copyright. 
B)  a network externality. 
C)  a quota. 
D)  a public franchise.

Question 5

If a per-unit tax on output sold is imposed on a monopoly's product, the monopolist will increase its market price by the full amount of the tax.

Accepted Answer

A) True 
 B)False

Question 6

Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

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." How much profit (or loss) will the college make on the course if it charges this price?

Accepted Answer

A)  -$2,592,000 
B)  -$1,080,000 
C)  $0 
D)  $450,000 
A)  -$2,592,000 
B)  -$1,080,000 
C)  $0 
D)  $450,000

Question 8

Figure 15-15   Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
-Refer to Figure 15-15. If the government regulates Erickson Power Company so that the firm can earn a normal profit, the price would be set at ________ and the output level is ________.

Accepted Answer

A)  P1; Q4 
B)  P2; Q3 
C)  P2; Q2 
D)  P3; Q2 
A)  P1; Q4 
B)  P2; Q3 
C)  P2; Q2 
D)  P3; Q2

Question 9

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

Accepted Answer

A)  Yes, there are no substitutes to Peet's coffee. 
B)  No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes. 
C)  Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry. 
D)  No, Peet's is not a monopoly because there are many branches of Peet's. 
A)  Yes, there are no substitutes to Peet's coffee. 
B)  No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes. 
C)  Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry. 
D)  No, Peet's is not a monopoly because there are many branches of Peet's.

Question 10

In the United States, government policies with respect to monopolies and collusion are embodied in

Accepted Answer

A)  the U.S. Constitution. 
B)  common law, which the United States adopted from English law. 
C)  the Supreme Court. 
D)  antitrust laws. 
A)  the U.S. Constitution. 
B)  common law, which the United States adopted from English law. 
C)  the Supreme Court. 
D)  antitrust laws.

Question 11

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

Accepted Answer

A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit. 
A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit.

Question 12

If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 13

If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then

Accepted Answer

A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit. 
A)  to maximize profit the firm should increase output. 
B)  to maximize profit the firm should decrease output. 
C)  to maximize profit the firm should continue to produce the output it is producing. 
D)  Not enough information is given to say what the firm should do to maximize profit.

Question 14

Governments grant patents to

Accepted Answer

A)  compensate firms for research and development costs. 
B)  encourage competition. 
C)  encourage low prices. 
D)  encourage firms to reveal secret production techniques. 
A)  compensate firms for research and development costs. 
B)  encourage competition. 
C)  encourage low prices. 
D)  encourage firms to reveal secret production techniques.

Question 15

Merger guidelines developed by the Antitrust Division of the U.S. Department of Justice use four-firm concentration ratios as measures of concentration.

Accepted Answer

A) True 
 B)False

Question 16

Figure 15-4   Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4. What is the amount of the monopoly's total revenue?

Accepted Answer

A)  $21,600 
B)  $20,400 
C)  $19,740 
D)  $7,800 
A)  $21,600 
B)  $20,400 
C)  $19,740 
D)  $7,800

Question 17

Figure 15-4   Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4. What is the amount of the monopoly's profit?

Accepted Answer

A)  $2,700 
B)  $4,200 
C)  $10,400 
D)  $12,600 
A)  $2,700 
B)  $4,200 
C)  $10,400 
D)  $12,600

Question 18

The size of a deadweight loss in a market is reduced by

Accepted Answer

A)  government legislating a ceiling price. 
B)  government legislating a price floor. 
C)  market price being close to marginal cost. 
D)  creative destruction. 
A)  government legislating a ceiling price. 
B)  government legislating a price floor. 
C)  market price being close to marginal cost. 
D)  creative destruction.

Question 19

U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?

Accepted Answer

Patents are designed to encourage creati

Question 20

Consider two industries, industry Q and industry Z. In industry Q there are 10 companies, each with a market share of 10% of total sales. In industry Z, there are eight companies. One company has a 65% market share and each of the other seven firms has a market share of 5%.
a. Calculate the four-firm concentration ratio for each industry.
b. Calculate the Herfindahl-Hirschman Index (HHI) for each industry.

Accepted Answer

a. The concentration ratio in industry Q

Exam 15: Monopoly and Antitrust Policy

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

For decades, the NCAA restricted the number of college football and basketball games that could be televised, and in 1982 the University of Georgia and the University of Oklahoma sued the NCAA under the federal antitrust laws. In 1984, the Supreme Court decided the case

When the government makes a firm the exclusive legal provider of a good or service, it grants the firm

If a per-unit tax on output sold is imposed on a monopoly's product, the monopolist will increase its market price by the full amount of the tax.

Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal revenue equals marginal cost.

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. If the government regulates Erickson Power Company so that the firm can earn a normal profit, the price would be set at ________ and the output level is ________.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

In the United States, government policies with respect to monopolies and collusion are embodied in

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then

Governments grant patents to

Merger guidelines developed by the Antitrust Division of the U.S. Department of Justice use four-firm concentration ratios as measures of concentration.

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4. What is the amount of the monopoly's total revenue?

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. -Refer to Figure 15-4. What is the amount of the monopoly's profit?

The size of a deadweight loss in a market is reduced by

U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?

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 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. -Refer to Figure 15-15. If the government regulates Erickson Power Company so that the firm can earn a normal profit, the price would be set at and the output level is .