Question 1

Under profit regulation, a natural monopolist has an incentive to be very careful about minimizing costs.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a regulatory agency makes decisions that seem to require an ever-growing agency budget and staff of regulators to monitor firms and enforce the decisions. This would be evidence in support of the __________ theory of regulation.

Accepted Answer

A) public choice 
B) public interest 
C) capture 
D) Stigler 
A) public choice 
B) public interest 
C) capture 
D) Stigler

Question 3

Which antitrust legislation was passed in an attempt to decrease the failure rate of small businesses by protecting them from competition from large and growing chain stores?

Accepted Answer

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

Question 4

Exhibit 25-5
​
  
-Refer to Exhibit 25-5. If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency, then it will produce __________ quantity of output and charge a price of __________ per unit.

Accepted Answer

A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P1 
E) none of the above 
A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P1 
E) none of the above

Question 5

Natural monopolies arise because of economies of scale.

Accepted Answer

A) True 
 B)False

Question 6

What is the Herfindahl index of an industry made up of four equal-sized firms?

Accepted Answer

A) 1,667 
B) 2,500 
C) 2,250 
D) 125 
E) This cannot be determined without further information. 
A) 1,667 
B) 2,500 
C) 2,250 
D) 125 
E) This cannot be determined without further information.

Question 7

The act that made tying contracts illegal was the

Accepted Answer

A) Clayton Act. 
B) Robinson-Patman Act. 
C) Federal Trade Commission Act. 
D) Wheeler-Lea Act. 
E) Celler-Kefauver Antimerger Act. 
A) Clayton Act. 
B) Robinson-Patman Act. 
C) Federal Trade Commission Act. 
D) Wheeler-Lea Act. 
E) Celler-Kefauver Antimerger Act.

Question 8

The capture theory of regulation specifies that

Accepted Answer

A) a firm will attempt to capture a large share of its market and then force its competitors out of business. 
B) regulators of monopolies capture or control the market behavior of monopolies to suit the best interests of society. 
C) industries or firms can sometimes gain control of the agencies that are attempting to regulate them. 
D) directors of one company often sit on the board of directors of another company in the same industry and thereby capture control of the industry. 
A) a firm will attempt to capture a large share of its market and then force its competitors out of business. 
B) regulators of monopolies capture or control the market behavior of monopolies to suit the best interests of society. 
C) industries or firms can sometimes gain control of the agencies that are attempting to regulate them. 
D) directors of one company often sit on the board of directors of another company in the same industry and thereby capture control of the industry.

Question 9

A firm defending itself in an antitrust suit would prefer the market it operates in to be defined _____________, which ______________ the firm's market share compared to what it might be judged otherwise.

Accepted Answer

A) narrowly; raises 
B) narrowly; lowers 
C) broadly; raises 
D) broadly; lowers 
A) narrowly; raises 
B) narrowly; lowers 
C) broadly; raises 
D) broadly; lowers

Question 10

A network good is a good whose value decreases as the expected number of units sold increases.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) less than 1,000 
B) between 1,000 and 1,800 
C) greater than 1,800 
D) greater than 10,000 
A) less than 1,000 
B) between 1,000 and 1,800 
C) greater than 1,800 
D) greater than 10,000

Question 12

Exhibit 25-1
​
  
-Refer to Exhibit 25- 1. If average-cost pricing is imposed on the natural monopoly firm, what price is charged?

Accepted Answer

A) P1 
B) P2 
C) P3 
D) any of the three prices 
A) P1 
B) P2 
C) P3 
D) any of the three prices

Question 13

The natural monopolist might have an incentive to go out of business under

Accepted Answer

A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) average-cost pricing. 
E) b and d 
A) price regulation. 
B) profit regulation. 
C) output regulation. 
D) average-cost pricing. 
E) b and d

Question 14

"Tying contracts" are

Accepted Answer

A) agreements between unions and businesses such that when a labor contract is signed, the union and the firm are bound by its terms. 
B) selling to a retailer on the condition that the retailer not resell the product to another business. 
C) selling to a retailer on the condition that the retailer not carry any rival products. 
D) arrangements whereby the sale of one product is dependent on the purchase of some other product. 
A) agreements between unions and businesses such that when a labor contract is signed, the union and the firm are bound by its terms. 
B) selling to a retailer on the condition that the retailer not resell the product to another business. 
C) selling to a retailer on the condition that the retailer not carry any rival products. 
D) arrangements whereby the sale of one product is dependent on the purchase of some other product.

Question 15

A network good is one whose value

Accepted Answer

A) increases as the expected number of units sold increases. 
B) was created by the Internet. 
C) is dependent upon interconnection to another good. 
D) is defined by its links to other markets. 
A) increases as the expected number of units sold increases. 
B) was created by the Internet. 
C) is dependent upon interconnection to another good. 
D) is defined by its links to other markets.

Question 16

When a new word processing software program is released, companies that might use it must consider not only the cost of buying it, but the costs of retraining all their employees to use it, and of training their support staff to install and operate it. These additional costs beyond the purchase price are known as __________ costs.

Accepted Answer

A) implicit 
B) innovation 
C) switching 
D) transformation 
A) implicit 
B) innovation 
C) switching 
D) transformation

Question 17

Thomas Edison played a key role in putting together the Movie Trust which reportedly tried to eliminate competition in the early days of the movie industry.

Accepted Answer

A) True 
 B)False

Question 18

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

Accepted Answer

A) has no incentive to hold costs down. 
B) must bear losses continually. 
C) will retain positive economic profits. 
D) produces more output than is resource-allocative efficient. 
A) has no incentive to hold costs down. 
B) must bear losses continually. 
C) will retain positive economic profits. 
D) produces more output than is resource-allocative efficient.

Question 19

If government regulators want a natural monopolist to earn only zero economic profits, then they will set a price

Accepted Answer

A) equal to average total cost (AT
C) . 
B) equal to marginal cost. 
C) such that marginal revenue equals marginal cost. 
D) none of the above 
A) equal to average total cost (AT
C) . 
B) equal to marginal cost. 
C) such that marginal revenue equals marginal cost. 
D) none of the above

Question 20

The antitrust act that says, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal" is the

Accepted Answer

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

Exam 25: Government and Product Markets Antitrust and Regulation

Under profit regulation, a natural monopolist has an incentive to be very careful about minimizing costs.

Suppose a regulatory agency makes decisions that seem to require an ever-growing agency budget and staff of regulators to monitor firms and enforce the decisions. This would be evidence in support of the __________ theory of regulation.

Which antitrust legislation was passed in an attempt to decrease the failure rate of small businesses by protecting them from competition from large and growing chain stores?

Exhibit 25-5 ​ -Refer to Exhibit 25-5. If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency, then it will produce __________ quantity of output and charge a price of __________ per unit.

Natural monopolies arise because of economies of scale.

What is the Herfindahl index of an industry made up of four equal-sized firms?

The act that made tying contracts illegal was the

The capture theory of regulation specifies that

A firm defending itself in an antitrust suit would prefer the market it operates in to be defined _____________, which ______________ the firm's market share compared to what it might be judged otherwise.

A network good is a good whose value decreases as the expected number of units sold increases.

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

Exhibit 25-1 ​ -Refer to Exhibit 25- 1. If average-cost pricing is imposed on the natural monopoly firm, what price is charged?

The natural monopolist might have an incentive to go out of business under

"Tying contracts" are

A network good is one whose value

Thomas Edison played a key role in putting together the Movie Trust which reportedly tried to eliminate competition in the early days of the movie industry.

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

If government regulators want a natural monopolist to earn only zero economic profits, then they will set a price

The antitrust act that says, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal" is the

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

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Money and the Economy

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Expectations Theory and the Economy

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Debates in Macroeconomics Over the Role and Effects of Government

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The Economic Case for and Against Government Five Topics Considered

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Filters

Exhibit 25-5 -Refer to Exhibit 25-5. If the natural monopoly firm is regulated to charging a price per unit that achieves resource-allocative efficiency, then it will produce quantity of output and charge a price of per unit.

A firm defending itself in an antitrust suit would prefer the market it operates in to be defined _, which __ the firm's market share compared to what it might be judged otherwise.

Exhibit 25-1 -Refer to Exhibit 25- 1. If average-cost pricing is imposed on the natural monopoly firm, what price is charged?