Question 1

The public interest theory of regulation holds that regulators will

Accepted Answer

A) make regulatory decisions that benefit them at the expense of the special interests they are regulating. 
B) be slow to adopt sound economic principles to guide their regulatory decision-making. 
C) do through regulation what is in the public's best interest. 
D) say they are doing what is right for the public, but in reality they are doing what is right for themselves. 
E) often take vacations at taxpayer's expense. 
A) make regulatory decisions that benefit them at the expense of the special interests they are regulating. 
B) be slow to adopt sound economic principles to guide their regulatory decision-making. 
C) do through regulation what is in the public's best interest. 
D) say they are doing what is right for the public, but in reality they are doing what is right for themselves. 
E) often take vacations at taxpayer's expense.

Question 2

Exhibit 25-5
​
  
-Refer to Exhibit 25-5. If the natural monopoly firm were to maximize profits it would produce __________ quantity of output and charge a price of __________ per unit.

Accepted Answer

A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P2 
E) Q3; P3 
A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P2 
E) Q3; P3

Question 3

The Clayton Act of 1914 makes price discrimination, exclusive dealers, tying contracts, and the acquisition of competing companies' stock illegal when their effects "substantially lessen competition or tend to create a monopoly."

Accepted Answer

A) True 
 B)False

Question 4

The type of proposed merger that generally concerns the federal government the most is a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 5

"Regulatory lag" refers to the period between the time when

Accepted Answer

A) the natural monopolist's costs change and the time the regulatory agency adjusts the monopolist's prices. 
B) the natural monopolist changes its prices and the time when the regulatory agency rules on that change. 
C) the regulatory agency decides to regulate a firm and the time it actually accomplishes the task. 
D) a firm is initially regulated by an agency and the time the firm "captures" that agency. 
E) the regulatory agency decides to deregulate a firm and the time it actually accomplishes the task. 
A) the natural monopolist's costs change and the time the regulatory agency adjusts the monopolist's prices. 
B) the natural monopolist changes its prices and the time when the regulatory agency rules on that change. 
C) the regulatory agency decides to regulate a firm and the time it actually accomplishes the task. 
D) a firm is initially regulated by an agency and the time the firm "captures" that agency. 
E) the regulatory agency decides to deregulate a firm and the time it actually accomplishes the task.

Question 6

Which antitrust legislation made price discrimination illegal?

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 7

"Exclusive dealing" refers to

Accepted Answer

A) charging one customer a higher price than another customer for the same good. 
B) the condition that is necessary before a conglomerate merger is likely to be successful. 
C) a provision of the Sherman Act. 
D) selling to a retailer on the condition that the retailer not carry any rival products. 
E) none of the above 
A) charging one customer a higher price than another customer for the same good. 
B) the condition that is necessary before a conglomerate merger is likely to be successful. 
C) a provision of the Sherman Act. 
D) selling to a retailer on the condition that the retailer not carry any rival products. 
E) none of the above

Question 8

If the four-firm concentration ratio in an industry is 80 percent, and the top four firms hold equal market shares, the Herfindahl index for the industry is

Accepted Answer

A) 1,600. 
B) 2,000. 
C) 3,200. 
D) 6,400. 
E) There is not enough information provided to answer this question. 
A) 1,600. 
B) 2,000. 
C) 3,200. 
D) 6,400. 
E) There is not enough information provided to answer this question.

Question 9

The Wheeler-Lea Act of 1938 empowered the Federal Trade Commission to

Accepted Answer

A) deal with anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company. 
B) deal with false and deceptive advertising. 
C) deal with unfair methods of competition and to determine which actions taken by businesses were too aggressive. 
D) regulate the trucking and railroad industries. 
E) decrease the failure rate of small businesses by protecting them from competition from large and growing chain stores. 
A) deal with anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company. 
B) deal with false and deceptive advertising. 
C) deal with unfair methods of competition and to determine which actions taken by businesses were too aggressive. 
D) regulate the trucking and railroad industries. 
E) decrease the failure rate of small businesses by protecting them from competition from large and growing chain stores.

Question 10

If the four-firm concentration ratio is 100 percent, this means that the

Accepted Answer

A) top four firms each hold 5 percent of the market share. 
B) industry consists of no more than four firms. 
C) top four firms necessarily each hold a 25 percent market share. 
D) none of the above 
A) top four firms each hold 5 percent of the market share. 
B) industry consists of no more than four firms. 
C) top four firms necessarily each hold a 25 percent market share. 
D) none of the above

Question 11

If government regulators guarantee that a natural monopoly will earn normal profits, then

Accepted Answer

A) the monopolist has little or no incentive to hold down its costs. 
B) the monopolist has a sharp incentive to hold down its costs so as to increase profits. 
C) the monopolist will probably try its best to maintain its costs at the current level. 
D) it is impossible to determine the monopolist's incentives regarding costs before the firm actually incurs some changes in its costs. 
A) the monopolist has little or no incentive to hold down its costs. 
B) the monopolist has a sharp incentive to hold down its costs so as to increase profits. 
C) the monopolist will probably try its best to maintain its costs at the current level. 
D) it is impossible to determine the monopolist's incentives regarding costs before the firm actually incurs some changes in its costs.

Question 12

Which of the following was declared illegal by the Sherman Act of 1890?

Accepted Answer

A) a conspiracy in restraint of trade 
B) price discrimination 
C) tying contracts 
D) interlocking directorates 
A) a conspiracy in restraint of trade 
B) price discrimination 
C) tying contracts 
D) interlocking directorates

Question 13

The type of regulatory pricing (of a natural monopoly firm) that is consistent with resource-allocative efficiency is __________ cost pricing.

Accepted Answer

A) average 
B) sunk 
C) marginal 
D) fixed 
E) none of the above 
A) average 
B) sunk 
C) marginal 
D) fixed 
E) none of the above

Question 14

Natural monopolies exist because of

Accepted Answer

A) economies of scale. 
B) diseconomies of scale. 
C) decreasing returns to scale. 
D) public franchises. 
E) deregulation. 
A) economies of scale. 
B) diseconomies of scale. 
C) decreasing returns to scale. 
D) public franchises. 
E) deregulation.

Question 15

Which of the following is not a way that natural monopolies are regulated?

Accepted Answer

A) Government regulators determine the price of the product. 
B) Government regulators determine an acceptable profit. 
C) Government regulators determine an acceptable output. 
D) Government regulators determine which patents the monopoly can retain. 
A) Government regulators determine the price of the product. 
B) Government regulators determine an acceptable profit. 
C) Government regulators determine an acceptable output. 
D) Government regulators determine which patents the monopoly can retain.

Question 16

Large firms may be more likely to innovate because

Accepted Answer

A) the risks of failure are less to them than to small firms. 
B) they can attract the capital needed more easily. 
C) they can more easily attract the scientists and engineering staff they need. 
D) a, b and c 
A) the risks of failure are less to them than to small firms. 
B) they can attract the capital needed more easily. 
C) they can more easily attract the scientists and engineering staff they need. 
D) a, b and c

Question 17

Thomas Edison constructed the first building that was used solely to make

Accepted Answer

A) movies. 
B) airplanes. 
C) telephones. 
D) cameras. 
A) movies. 
B) airplanes. 
C) telephones. 
D) cameras.

Question 18

If natural monopolies are regulated to produce where there is a normal profit, 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 19

The Robinson-Patman Act of 1936 prohibited

Accepted Answer

A) large retailers from selling at prices below those prices charged by small retailers. 
B) large retailers from engaging in false and deceptive acts and practices. 
C) suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D) customers from seeking out the lowest-priced good from different retailers. 
E) all of the above 
A) large retailers from selling at prices below those prices charged by small retailers. 
B) large retailers from engaging in false and deceptive acts and practices. 
C) suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers. 
D) customers from seeking out the lowest-priced good from different retailers. 
E) all of the above

Question 20

"Exclusive dealing" is

Accepted Answer

A) a situation in which sellers provide only high-quality, name-brand goods. 
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) when a union's leadership deals only with the firm's managers and vice versa, so that individual workers cannot "cut their own deal." 
A) a situation in which sellers provide only high-quality, name-brand goods. 
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) when a union's leadership deals only with the firm's managers and vice versa, so that individual workers cannot "cut their own deal."

Exam 25: Government and Product Markets Antitrust and Regulation

The public interest theory of regulation holds that regulators will

Exhibit 25-5 ​ -Refer to Exhibit 25-5. If the natural monopoly firm were to maximize profits it would produce __________ quantity of output and charge a price of __________ per unit.

The Clayton Act of 1914 makes price discrimination, exclusive dealers, tying contracts, and the acquisition of competing companies' stock illegal when their effects "substantially lessen competition or tend to create a monopoly."

The type of proposed merger that generally concerns the federal government the most is a horizontal merger.

"Regulatory lag" refers to the period between the time when

Which antitrust legislation made price discrimination illegal?

"Exclusive dealing" refers to

If the four-firm concentration ratio in an industry is 80 percent, and the top four firms hold equal market shares, the Herfindahl index for the industry is

The Wheeler-Lea Act of 1938 empowered the Federal Trade Commission to

If the four-firm concentration ratio is 100 percent, this means that the

If government regulators guarantee that a natural monopoly will earn normal profits, then

Which of the following was declared illegal by the Sherman Act of 1890?

The type of regulatory pricing (of a natural monopoly firm) that is consistent with resource-allocative efficiency is __________ cost pricing.

Natural monopolies exist because of

Which of the following is not a way that natural monopolies are regulated?

Large firms may be more likely to innovate because

Thomas Edison constructed the first building that was used solely to make

If natural monopolies are regulated to produce where there is a normal profit, they produce where

The Robinson-Patman Act of 1936 prohibited

"Exclusive dealing" is

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Exhibit 25-5 -Refer to Exhibit 25-5. If the natural monopoly firm were to maximize profits it would produce quantity of output and charge a price of per unit.