Question 1

If regulators want to allow monopolists to keep some of the benefits from lower costs in the form of higher profit:

Accepted Answer

A) marginal-cost pricing is required 
B) a departure from marginal-cost pricing is required 
C) public ownership of monopolies is required 
D) application of the Trade Practices Act is required 
A) marginal-cost pricing is required 
B) a departure from marginal-cost pricing is required 
C) public ownership of monopolies is required 
D) application of the Trade Practices Act is required

Question 2

Suppose the government regulates a natural monopoly by making the firm charge marginal cost.In order for the firm to make zero economic profits the government must pay a subsidy to the firm.What amount should this subsidy be?

Accepted Answer

A) a subsidy of (Average Total Cost - marginal cost) per unit 
B) a subsidy of (Average Variable Cost - marginal cost) per unit 
C) a subsidy of (quantity*price) per unit 
D) a subsidy of (quantity*marginal cost) per unit 
A) a subsidy of (Average Total Cost - marginal cost) per unit 
B) a subsidy of (Average Variable Cost - marginal cost) per unit 
C) a subsidy of (quantity*price) per unit 
D) a subsidy of (quantity*marginal cost) per unit

Question 3

As the number of sellers in an oligopoly grows, an oligopolistic market looks more and more like a competitive market.

Accepted Answer

A) True 
 B)False

Question 4

Government-run monopolies may lead to undesirable outcomes in the form of:

Accepted Answer

A) special interest groups that attempt to block cost reductions 
B) customer and taxpayer losses when the monopoly operates inefficiently 
C) the political system as the only avenue of recourse for customers 
D) all of the above 
A) special interest groups that attempt to block cost reductions 
B) customer and taxpayer losses when the monopoly operates inefficiently 
C) the political system as the only avenue of recourse for customers 
D) all of the above

Question 5

Some shops may provide a lot of information to a customer at a high cost to the store.If the customer then buys the product cheaper from a different store that does not provide this information, a free-rider problem emerges.A possible solution to this problem is:

Accepted Answer

A) resale price maintenance 
B) cost-plus pricing 
C) tying 
D) marginal-cost pricing 
A) resale price maintenance 
B) cost-plus pricing 
C) tying 
D) marginal-cost pricing

Question 6

The Australian law that controls mergers and prevents monopolists from abusing their market power is the Competition and Consumer Act 2010.

Accepted Answer

A) True 
 B)False

Question 7

As the number of sellers in an oligopoly grows, an oligopolistic market looks less and less like a competitive market.

Accepted Answer

A) True 
 B)False

Question 8

A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.

Accepted Answer

A) True 
 B)False

Question 9

Economists usually prefer private ownership to public ownership of natural monopolies because private owners have an incentive to:

Accepted Answer

A) maximise cost as long as they reap part of the benefit in the form of lower profit 
B) minimise cost as long as they reap part of the benefit in the form of lower profit 
C) maximise cost as long as they reap part of the benefit in the form of higher profit 
D) minimise cost as long as they reap part of the benefit in the form of higher profit 
A) maximise cost as long as they reap part of the benefit in the form of lower profit 
B) minimise cost as long as they reap part of the benefit in the form of lower profit 
C) maximise cost as long as they reap part of the benefit in the form of higher profit 
D) minimise cost as long as they reap part of the benefit in the form of higher profit

Question 10

Why is doing nothing sometimes considered an appropriate strategy to deal with monopoly?

Accepted Answer

Government regulation to try to limit th

Question 11

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

A) resale price maintenance 
B) tying 
C) cost-plus pricing 
D) free riding 
A) resale price maintenance 
B) tying 
C) cost-plus pricing 
D) free riding

Question 12

A common solution to the monopoly problem is for government agencies to regulate prices.

Accepted Answer

A) True 
 B)False

Question 13

Transparent pricing may help a cartel to sustain high prices.

Accepted Answer

A) True 
 B)False

Question 14

What is resale price maintenance, predatory pricing and tying?

Accepted Answer

Resale price maintenance is when a whole

Question 15

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of predatory pricing.

Accepted Answer

A) True 
 B)False

Question 16

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly has no incentive to exit the industry.

Accepted Answer

A) True 
 B)False

Question 17

A legitimate business reason for companies to merge is not to reduce competition but to:

Accepted Answer

A) increase costs through less efficient joint product 
B) increase costs through more efficient joint product 
C) reduce costs through less efficient joint product 
D) reduce costs through more efficient joint product 
A) increase costs through less efficient joint product 
B) increase costs through more efficient joint product 
C) reduce costs through less efficient joint product 
D) reduce costs through more efficient joint product

Question 18

Explain the practice of resale price maintenance and discuss why it is controversial.

Accepted Answer

Resale price maintenance is a requiremen

Question 19

Tying can be thought of as a form of price discrimination.

Accepted Answer

A) True 
 B)False

Question 20

The information obtained from a retail outlet can be considered a:

Accepted Answer

A) private good 
B) cooperative good 
C) collective good 
D) public good 
A) private good 
B) cooperative good 
C) collective good 
D) public good

Exam 18: Competition Policy

If regulators want to allow monopolists to keep some of the benefits from lower costs in the form of higher profit:

Suppose the government regulates a natural monopoly by making the firm charge marginal cost.In order for the firm to make zero economic profits the government must pay a subsidy to the firm.What amount should this subsidy be?

As the number of sellers in an oligopoly grows, an oligopolistic market looks more and more like a competitive market.

Government-run monopolies may lead to undesirable outcomes in the form of:

Some shops may provide a lot of information to a customer at a high cost to the store.If the customer then buys the product cheaper from a different store that does not provide this information, a free-rider problem emerges.A possible solution to this problem is:

The Australian law that controls mergers and prevents monopolists from abusing their market power is the Competition and Consumer Act 2010.

As the number of sellers in an oligopoly grows, an oligopolistic market looks less and less like a competitive market.

A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.

Economists usually prefer private ownership to public ownership of natural monopolies because private owners have an incentive to:

Why is doing nothing sometimes considered an appropriate strategy to deal with monopoly?

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

A common solution to the monopoly problem is for government agencies to regulate prices.

Transparent pricing may help a cartel to sustain high prices.

What is resale price maintenance, predatory pricing and tying?

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of predatory pricing.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly has no incentive to exit the industry.

A legitimate business reason for companies to merge is not to reduce competition but to:

Explain the practice of resale price maintenance and discuss why it is controversial.

Tying can be thought of as a form of price discrimination.

The information obtained from a retail outlet can be considered a:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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