Question 1

Which of the following statements is false?

Accepted Answer

A) The way a market is defined can have much to say about whether a firm is viewed as a monopoly or not. 
B) In 1945, a court ruled that Alcoa was a monopoly. 
C) In the Dupont case in 1956, the market relevant to Dupont was ruled to be the cellophane market rather than the flexible wrapping materials market. 
D) The government eventually dropped its 1969 suit against IBM. 
A) The way a market is defined can have much to say about whether a firm is viewed as a monopoly or not. 
B) In 1945, a court ruled that Alcoa was a monopoly. 
C) In the Dupont case in 1956, the market relevant to Dupont was ruled to be the cellophane market rather than the flexible wrapping materials market. 
D) The government eventually dropped its 1969 suit against IBM. C

Question 2

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. A

Question 3

What is the difference between a vertical merger and a horizontal merger? Which one is the Justice Department more likely to look at more carefully and why?

Accepted Answer

A vertical merger is a merger between two firms in the same industry, but at different stages of the production process so that the firms had the potential for a buyer-seller relationship prior to the merger. A horizontal merger is a merger between firms that are selling similar products in the same market and this is the type of merger that the Justice Department will investigate more closely because it is more likely to change the degree of concentration in an industry.

Question 4

In the past, it was theorized that __________ firms were the most likely to innovate. In recent years, new information has suggested that __________ firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __________ important.

Accepted Answer

A) small; large; more 
B) small; large; less 
C) large; small; more 
D) large; small; less 
A) small; large; more 
B) small; large; less 
C) large; small; more 
D) large; small; less

Question 5

The Herfindahl index is obtained by

Accepted Answer

A) adding the squares of the market shares of each firm in the industry. 
B) adding the market shares of the largest four firms in the industry. 
C) finding the difference between the squares of the market shares of each firm in the industry. 
D) finding the difference between the market shares of each firm in the industry. 
E) none of the above 
A) adding the squares of the market shares of each firm in the industry. 
B) adding the market shares of the largest four firms in the industry. 
C) finding the difference between the squares of the market shares of each firm in the industry. 
D) finding the difference between the market shares of each firm in the industry. 
E) none of the above

Question 6

Exhibit 25-40
​
  
-Refer to Exhibit 25-4. The resource-allocative efficient level of output is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
E) Q5. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q4. 
E) Q5.

Question 7

Switching costs make it less likely that the consumer of a network good will shift to a different company's product. This is called the __________ effect.

Accepted Answer

A) lock-in 
B) system 
C) Internet 
D) compression 
A) lock-in 
B) system 
C) Internet 
D) compression

Question 8

The Robinson-Patman Act of 1936

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

The hotel industry contains some aspects that economists consider to be part of the "hidden fee" economy.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Define the term lock-in effect and explain how this effect might make a network monopoly that benefits from it less likely to innovate.

Accepted Answer

The lock-in effect describes the situati

Question 12

The Herfindahl index

Accepted Answer

A) measures the degree of concentration in an industry. 
B) is the square of the sum of the market shares of each firm in the industry. 
C) is not subject to any of the criticisms of the concentration ratios. 
D) a and b 
E) all of the above 
A) measures the degree of concentration in an industry. 
B) is the square of the sum of the market shares of each firm in the industry. 
C) is not subject to any of the criticisms of the concentration ratios. 
D) a and b 
E) all of the above

Question 13

Exhibit 25-40
​
  
-Refer to Exhibit 25-4. What is the total revenue of the profit-maximizing natural monopoly?

Accepted Answer

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

Question 14

If natural monopolies are regulated to produce where there is resource-allocative efficiency, they produce where

Accepted Answer

A) price equals average total cost. 
B) marginal revenue equals marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost. 
A) price equals average total cost. 
B) marginal revenue equals marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average total cost.

Question 15

If there are six firms in an industry and the market shares of the firms are 32 percent, 25 percent, 19 percent, 9 percent, 8 percent and 7 percent, the Herfindahl index is

Accepted Answer

A) 2,204. 
B) 2,091. 
C) 8,600. 
D) 10,000. 
E) 85. 
A) 2,204. 
B) 2,091. 
C) 8,600. 
D) 10,000. 
E) 85.

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

The merger of two firms producing personal computers is an example of a __________ merger.

Accepted Answer

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

Question 18

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 19

The Sherman Act of 1890

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.

Question 20

The Federal Trade Commission Act of 1914

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 25: Government and Product Markets Antitrust and Regulation

Which of the following statements is false?

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

What is the difference between a vertical merger and a horizontal merger? Which one is the Justice Department more likely to look at more carefully and why?

In the past, it was theorized that __________ firms were the most likely to innovate. In recent years, new information has suggested that __________ firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __________ important.

The Herfindahl index is obtained by

Exhibit 25-40 ​ -Refer to Exhibit 25-4. The resource-allocative efficient level of output is

Switching costs make it less likely that the consumer of a network good will shift to a different company's product. This is called the __________ effect.

The Robinson-Patman Act of 1936

The hotel industry contains some aspects that economists consider to be part of the "hidden fee" economy.

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

Define the term lock-in effect and explain how this effect might make a network monopoly that benefits from it less likely to innovate.

The Herfindahl index

Exhibit 25-40 ​ -Refer to Exhibit 25-4. What is the total revenue of the profit-maximizing natural monopoly?

If natural monopolies are regulated to produce where there is resource-allocative efficiency, they produce where

If there are six firms in an industry and the market shares of the firms are 32 percent, 25 percent, 19 percent, 9 percent, 8 percent and 7 percent, the Herfindahl index is

Which of the following is usually considered a natural monopoly?

The merger of two firms producing personal computers is an example of a __________ merger.

The monopoly power problem is that a monopoly

The Sherman Act of 1890

The Federal Trade Commission Act of 1914

What Economics Is About

Production Possibilities Frontier Framework

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In the past, it was theorized that firms were the most likely to innovate. In recent years, new information has suggested that firms are greater innovators. If true, this makes antitrust intervention in the case of mergers __ important.

Exhibit 25-40 -Refer to Exhibit 25-4. The resource-allocative efficient level of output is

Exhibit 25-40 -Refer to Exhibit 25-4. What is the total revenue of the profit-maximizing natural monopoly?