Question 1

What is the maximum value of the Herfindahl index?

Accepted Answer

A) 10 
B) 100 
C) 1,000 
D) 10,000 
E) There is no maximum value of the Herfindahl index. 
A) 10 
B) 100 
C) 1,000 
D) 10,000 
E) There is no maximum value of the Herfindahl index.

Question 2

The type of merger that is most likely to change the degree of concentration, or competition, in an industry is the __________ merger.

Accepted Answer

A) four-firm 
B) vertical 
C) two-firm 
D) horizontal 
E) none of the above 
A) four-firm 
B) vertical 
C) two-firm 
D) horizontal 
E) none of the above

Question 3

Exhibit 25-5
​
  
-Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) 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; P2 
E) none of the above 
A) Q1; P3 
B) Q1; P2 
C) Q2; P3 
D) Q3; P2 
E) none of the above

Question 4

Economists are nearly unanimous in their belief that small firms in highly competitive markets with many rivals are more likely to innovate than are firms with larger market shares.

Accepted Answer

A) True 
 B)False

Question 5

The merger of a brewery with an aluminum can producer 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 6

An "interlocking directorate" is

Accepted Answer

A) an arrangement whereby the leaders of a union are also in the top management of the business with which the union is dealing. 
B) selling to a retailer on the condition that the retailer not carry any rival products. 
C) an arrangement whereby the sale of one product is dependent on the purchase of some other product. 
D) an arrangement whereby the directors of one company sit on the board of directors of another company in the same industry. 
A) an arrangement whereby the leaders of a union are also in the top management of the business with which the union is dealing. 
B) selling to a retailer on the condition that the retailer not carry any rival products. 
C) an arrangement whereby the sale of one product is dependent on the purchase of some other product. 
D) an arrangement whereby the directors of one company sit on the board of directors of another company in the same industry.

Question 7

The Wheeler-Lea Act of 1938

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 8

The capture theory of regulation holds that regulators use their influence and power to support the well being of the regulatory agency itself.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of government regulation of a natural monopoly distorting incentives?

Accepted Answer

A) A natural monopoly is held to average-cost pricing; therefore, it has little incentive to hold costs down. 
B) A natural monopoly is protected from competitors; therefore, it is rude to its customers. 
C) A natural monopoly is protected from competitors; therefore, it doesn't care much about the quality of the product it sells. 
D) a and c 
E) a, b, and c 
A) A natural monopoly is held to average-cost pricing; therefore, it has little incentive to hold costs down. 
B) A natural monopoly is protected from competitors; therefore, it is rude to its customers. 
C) A natural monopoly is protected from competitors; therefore, it doesn't care much about the quality of the product it sells. 
D) a and c 
E) a, b, and c

Question 10

A good example of a vertical merger would need to be the merger between two automobile manufacturers.

Accepted Answer

A) True 
 B)False

Question 11

The Federal Trade Commission Act of 1914

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 12

The Herfindahl index measures the

Accepted Answer

A) average market share of the firms in an industry. 
B) total market share of the four largest domestic firms in an industry. 
C) total market share of the four largest firms worldwide in an industry. 
D) degree of concentration in an industry. 
E) degree of competition among the four largest firms in an industry. 
A) average market share of the firms in an industry. 
B) total market share of the four largest domestic firms in an industry. 
C) total market share of the four largest firms worldwide in an industry. 
D) degree of concentration in an industry. 
E) degree of competition among the four largest firms in an industry.

Question 13

Exhibit 25-3
   ​
-Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

Accepted Answer

A) rise to 50 percent; rise to 1,062 
B) rise to 28 percent; rise to 10,000 
C) rise to 60 percent; fall to 986 
D) rise to 59 percent; rise to 1,212 
E) not be affected; not be affected 
A) rise to 50 percent; rise to 1,062 
B) rise to 28 percent; rise to 10,000 
C) rise to 60 percent; fall to 986 
D) rise to 59 percent; rise to 1,212 
E) not be affected; not be affected

Question 14

The Herfindahl index for a monopoly is 1,000.

Accepted Answer

A) True 
 B)False

Question 15

Natural monopoly exists when

Accepted Answer

A) one firm can supply the entire output demanded at lower cost than two or more firms can. 
B) one firm can supply the entire output demanded at higher cost than two or more firms can. 
C) one firm can supply the entire output demanded at the same cost as two or more firms. 
D) one firm controls all of the rights to a scarce resource. 
A) one firm can supply the entire output demanded at lower cost than two or more firms can. 
B) one firm can supply the entire output demanded at higher cost than two or more firms can. 
C) one firm can supply the entire output demanded at the same cost as two or more firms. 
D) one firm controls all of the rights to a scarce resource.

Question 16

The market shares (in percentage terms) for the 12 firms that comprise an industry are 15, 12, 11, 10, 8, 7, 7, 6, 6, 6, 6, and 6. The Herfindahl index will rise by __________ points if the firms with the two largest market shares merge.

Accepted Answer

A) 400 
B) 360 
C) 100 
D) 220 
E) 140 
A) 400 
B) 360 
C) 100 
D) 220 
E) 140

Question 17

Exhibit 25-3
   ​
-Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Accepted Answer

A) 840. 
B) 1,110. 
C) 1,330. 
D) 1,980. 
E) 10,000. 
A) 840. 
B) 1,110. 
C) 1,330. 
D) 1,980. 
E) 10,000.

Question 18

The Clayton 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.

Question 19

The natural monopolist might have an incentive to decrease cost 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 20

The primary intent of antitrust legislation is to

Accepted Answer

A) ensure that product safety standards are met. 
B) eliminate positive economic profits. 
C) eliminate price discrimination. 
D) control monopoly power and preserve and promote competition. 
E) all of the above 
A) ensure that product safety standards are met. 
B) eliminate positive economic profits. 
C) eliminate price discrimination. 
D) control monopoly power and preserve and promote competition. 
E) all of the above

Exam 25: Government and Product Markets Antitrust and Regulation

What is the maximum value of the Herfindahl index?

The type of merger that is most likely to change the degree of concentration, or competition, in an industry is the __________ merger.

Exhibit 25-5 ​ -Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) then it will produce __________ quantity of output and charge a price of __________ per unit.

Economists are nearly unanimous in their belief that small firms in highly competitive markets with many rivals are more likely to innovate than are firms with larger market shares.

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

An "interlocking directorate" is

The Wheeler-Lea Act of 1938

The capture theory of regulation holds that regulators use their influence and power to support the well being of the regulatory agency itself.

Which of the following is an example of government regulation of a natural monopoly distorting incentives?

A good example of a vertical merger would need to be the merger between two automobile manufacturers.

The Federal Trade Commission Act of 1914

The Herfindahl index measures the

Exhibit 25-3 ​ -Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

The Herfindahl index for a monopoly is 1,000.

Natural monopoly exists when

The market shares (in percentage terms) for the 12 firms that comprise an industry are 15, 12, 11, 10, 8, 7, 7, 6, 6, 6, 6, and 6. The Herfindahl index will rise by __________ points if the firms with the two largest market shares merge.

Exhibit 25-3 ​ -Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

The Clayton Act of 1914

The natural monopolist might have an incentive to decrease cost under

The primary intent of antitrust legislation is to

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

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

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

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Exhibit 25-5 -Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) then it will produce quantity of output and charge a price of per unit.

Exhibit 25-3 -Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would and the Herfindahl Index would _.

Exhibit 25-3 -Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently