Question 1

A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly, rather than narrowly.

Accepted Answer

A) True 
 B)False

Question 2

The Justice Department began using the Herfindahl index (rather than the four- and eight-firm concentration ratios) in 1982.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is false?

Accepted Answer

A) Average-cost pricing usually refers to setting a price for a natural monopoly firm that is equal to its ATC, thus guaranteeing the firm a normal profit. 
B) An economist thinks that there are both benefits and costs to most (if not all) types of regulation. 
C) The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large. 
D) One of the unintended effects of profit regulation (in the form of guaranteeing the natural monopoly firm that it will always earn normal profit-nothing more and nothing less) is that the natural monopoly has no incentive to keep its costs down. 
A) Average-cost pricing usually refers to setting a price for a natural monopoly firm that is equal to its ATC, thus guaranteeing the firm a normal profit. 
B) An economist thinks that there are both benefits and costs to most (if not all) types of regulation. 
C) The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large. 
D) One of the unintended effects of profit regulation (in the form of guaranteeing the natural monopoly firm that it will always earn normal profit-nothing more and nothing less) is that the natural monopoly has no incentive to keep its costs down.

Question 4

Evidence pertaining to the airline industry suggests that

Accepted Answer

A) since the airlines have become deregulated, airline fares have increased steadily. 
B) under regulation the airlines' fares were low, which indicates that the regulators were doing a good job setting prices. 
C) airline fares are no higher and no lower than they were when the industry was regulated. 
D) deregulation of the airline industry has brought significant price reductions. 
A) since the airlines have become deregulated, airline fares have increased steadily. 
B) under regulation the airlines' fares were low, which indicates that the regulators were doing a good job setting prices. 
C) airline fares are no higher and no lower than they were when the industry was regulated. 
D) deregulation of the airline industry has brought significant price reductions.

Question 5

The antitrust legislation that declares illegal "unfair methods of competition in commerce" is

Accepted Answer

A) the Sherman Act. 
B) the Clayton Act. 
C) the Federal Trade Commission Act. 
D) the Robinson-Patman Act. 
A) the Sherman Act. 
B) the Clayton Act. 
C) the Federal Trade Commission Act. 
D) the Robinson-Patman Act.

Question 6

What is the Herfindahl index of a monopoly?

Accepted Answer

A) 10 
B) 100 
C) 1,000 
D) 10,000 
A) 10 
B) 100 
C) 1,000 
D) 10,000

Question 7

How does the four-firm concentration ratio differ from the Herfindahl index? Which one does the Justice Department currently rely on when evaluating whether or not a proposed merger should be permitted?

Accepted Answer

The four-firm concentration ratio shows

Question 8

Exhibit 25-40
​
  
-Refer to Exhibit 25-4. With no regulation, the profit-maximizing firm would supply __________ units of output.

Accepted Answer

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

Question 9

Exhibit 25-40
​
  
-Refer to Exhibit 25-4. What is the productive-efficient level of output?

Accepted Answer

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

Question 10

The natural monopolist might have an incentive to let costs increase under

Accepted Answer

A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) a and b 
A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) a and b

Question 11

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 12

The Sherman Act of 1890

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 13

The Justice Department considers a Herfindahl index that is ____________________________ to be representative of a moderately concentrated industry.

Accepted Answer

A) less than 1,000 
B) between 1,000 and 1,800 
C) greater than 1,800 
D) greater than 2,000 
A) less than 1,000 
B) between 1,000 and 1,800 
C) greater than 1,800 
D) greater than 2,000

Question 14

The act that made exclusive dealing illegal was the

Accepted Answer

A) Sherman Act. 
B) Federal Trade Commission Act. 
C) Robinson-Patman Act. 
D) Clayton Act. 
E) none of the above 
A) Sherman Act. 
B) Federal Trade Commission Act. 
C) Robinson-Patman Act. 
D) Clayton Act. 
E) none of the above

Question 15

Exhibit 25-1
​
  
-Refer to Exhibit 25-1. Which of the following statements is false?

Accepted Answer

A) If marginal-cost pricing is imposed on the natural monopoly firm, the firm takes a loss. 
B) If average-cost pricing is imposed on the natural monopoly firm, the firm earns zero economic profits. 
C) If the natural monopoly firm produces Q3 units of output and charges P3 per unit, the firm earns zero economic profits. 
D) a and b 
E) a, b, and c 
A) If marginal-cost pricing is imposed on the natural monopoly firm, the firm takes a loss. 
B) If average-cost pricing is imposed on the natural monopoly firm, the firm earns zero economic profits. 
C) If the natural monopoly firm produces Q3 units of output and charges P3 per unit, the firm earns zero economic profits. 
D) a and b 
E) a, b, and c

Question 16

The profit-maximizing natural monopoly will

Accepted Answer

A) set price equal to marginal cost. 
B) produce the quantity of output at which MR = MC. 
C) charge the highest price per unit for the quantity of output it chooses to produce. 
D) necessarily face higher production costs if it is unregulated than if it is regulated. 
E) b and c 
A) set price equal to marginal cost. 
B) produce the quantity of output at which MR = MC. 
C) charge the highest price per unit for the quantity of output it chooses to produce. 
D) necessarily face higher production costs if it is unregulated than if it is regulated. 
E) b and c

Question 17

Antitrust law is legislation passed for the stated purpose of

Accepted Answer

A) reducing the profits of chain stores. 
B) promoting U.S.banking practices in foreign countries. 
C) controlling labor union practices in the states of New York, California, and Texas. 
D) controlling monopoly power and preserving and promoting competition. 
E) none of the above 
A) reducing the profits of chain stores. 
B) promoting U.S.banking practices in foreign countries. 
C) controlling labor union practices in the states of New York, California, and Texas. 
D) controlling monopoly power and preserving and promoting competition. 
E) none of the above

Question 18

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 19

What is the difference between the public interest theory of regulation and the public choice theory of regulation?

Accepted Answer

The public interest theory of regulation

Question 20

The antitrust legislation that empowers the Federal Trade Commission to deal with false and deceptive acts or practices (such as false and deceptive advertising) is

Accepted Answer

A) the Clayton Act. 
B) the Wheeler-Lea Act. 
C) the Celler-Kefauver Antimerger Act. 
D) the Robinson-Patman Act. 
E) none of the above 
A) the Clayton Act. 
B) the Wheeler-Lea Act. 
C) the Celler-Kefauver Antimerger Act. 
D) the Robinson-Patman Act. 
E) none of the above

Exam 25: Government and Product Markets Antitrust and Regulation

A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly, rather than narrowly.

The Justice Department began using the Herfindahl index (rather than the four- and eight-firm concentration ratios) in 1982.

Which of the following statements is false?

Evidence pertaining to the airline industry suggests that

The antitrust legislation that declares illegal "unfair methods of competition in commerce" is

What is the Herfindahl index of a monopoly?

How does the four-firm concentration ratio differ from the Herfindahl index? Which one does the Justice Department currently rely on when evaluating whether or not a proposed merger should be permitted?

Exhibit 25-40 ​ -Refer to Exhibit 25-4. With no regulation, the profit-maximizing firm would supply __________ units of output.

Exhibit 25-40 ​ -Refer to Exhibit 25-4. What is the productive-efficient level of output?

The natural monopolist might have an incentive to let costs increase under

The public interest theory of regulation holds that

The Sherman Act of 1890

The Justice Department considers a Herfindahl index that is ____________________________ to be representative of a moderately concentrated industry.

The act that made exclusive dealing illegal was the

Exhibit 25-1 ​ -Refer to Exhibit 25-1. Which of the following statements is false?

The profit-maximizing natural monopoly will

Antitrust law is legislation passed for the stated purpose of

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.

What is the difference between the public interest theory of regulation and the public choice theory of regulation?

The antitrust legislation that empowers the Federal Trade Commission to deal with false and deceptive acts or practices (such as false and deceptive advertising) is

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

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Interest Rent and Profit

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Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

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The Economic Case for and Against Government Five Topics Considered

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Exhibit 25-40 -Refer to Exhibit 25-4. With no regulation, the profit-maximizing firm would supply __________ units of output.

Exhibit 25-40 -Refer to Exhibit 25-4. What is the productive-efficient level of output?

Exhibit 25-1 -Refer to Exhibit 25-1. Which of the following statements is false?