Question 1

Microsoft has been accused of violating an antitrust law pertaining to bundling .

Accepted Answer

A) True 
 B)False  True

Question 2

The share of industry output sold by the top four steel producers in the country are 19 percent, 15 percent, 12 percent, and 9 percent, respectively. The four-firm concentration ratio for the steel industry is

Accepted Answer

A) 0.19. 
B) 0.55. 
C) 0.138. 
D) 0.65. 
A) 0.19. 
B) 0.55. 
C) 0.138. 
D) 0.65. B

Question 3

Consider an industry consisting of four firms with market shares of 30 percent, 25 percent, 25 percent, and 20 percent. Calculate the Herfindahl Hirschman Index and interpret your result.

Accepted Answer

HHI = (30 ² + 25 ² + 25 ² + 20 ² )= 2,550. The industry is considered to be highly concentrated as the HHI number exceeds 1,800.

Question 4

Why are the prices of some regulated industries often higher than they would be if there were no regulation?

Accepted Answer

Regulators are often concerned to preven

Question 5

Universal service may require making a service available in small communities where the limited scale of operations may make costs extremely high.

Accepted Answer

A) True 
 B)False

Question 6

Following mergers that raised the market shares of two airlines to 79 and 82 percent, respectively, of traffic in their hub cities, prices of service rose and the quantities of service fell, even though in most other markets, prices fell and quantities increased. The result suggests that

Accepted Answer

A) these markets were contestable. 
B) there was evidence of market power. 
C) oligopoly firms bought out their competitors. 
D) the market had no barriers to entry. 
A) these markets were contestable. 
B) there was evidence of market power. 
C) oligopoly firms bought out their competitors. 
D) the market had no barriers to entry.

Question 7

Economies of scope are present when a bank also sells insurance and provides brokerage services for stocks and bonds.

Accepted Answer

A) True 
 B)False

Question 8

If the automobile industry has become highly concentrated and cartelized. To maintain profits, firms may

Accepted Answer

A) allow newcomers to favorably enter the market. 
B) become price takers. 
C) prevent entry. 
D) lower prices to raise revenues. 
A) allow newcomers to favorably enter the market. 
B) become price takers. 
C) prevent entry. 
D) lower prices to raise revenues.

Question 9

Price discrimination by a firm is

Accepted Answer

A) illegal under all circumstances. 
B) legal if the firm can show that the difference in the prices charged customers is justified by a difference in the costs of serving them. 
C) legal if the firm can show that the demand for its good is relatively elastic. 
D) legal under all circumstances. 
A) illegal under all circumstances. 
B) legal if the firm can show that the difference in the prices charged customers is justified by a difference in the costs of serving them. 
C) legal if the firm can show that the demand for its good is relatively elastic. 
D) legal under all circumstances.

Question 10

List appropriate criteria for deciding whether a merger of two firms producing similar products should be permitted.

Accepted Answer

Mergers that take place between two firm

Question 11

In most industries, deregulation has led to lower prices.

Accepted Answer

A) True 
 B)False

Question 12

Modern antitrust policy began in response to

Accepted Answer

A) abuses of market power in the oil industry. 
B) the inability of railroads to compete effectively with the new trucking industry. 
C) the charge that the rights of big business were not adequately protected. 
D) attempts by business leaders to pack Congress with corrupt legislators. 
A) abuses of market power in the oil industry. 
B) the inability of railroads to compete effectively with the new trucking industry. 
C) the charge that the rights of big business were not adequately protected. 
D) attempts by business leaders to pack Congress with corrupt legislators.

Question 13

Deregulation of the airline and trucking industry has (i)resulted in considerable entry of new firms or (ii)has forced workers in these industries to make large concessions on wages and working conditions.

Accepted Answer

A) i and ii 
B) i but not ii 
C) ii but not i 
D) neither i nor ii 
A) i and ii 
B) i but not ii 
C) ii but not i 
D) neither i nor ii

Question 14

While monopoly power can be abused, it can also be used beneficially. What are the major pros and cons of largeness in business?

Accepted Answer

The following pros of largeness are give

Question 15

A firm that charges a very low price would be practicing predatory pricing if

Accepted Answer

A) the price allowed only a small profit. 
B) the price would only be profitable if it succeeded in driving a rival out of the market and prices increased afterward. 
C) the price allowed profits that were positive but below those earned by other firms. 
D) it only offered the low price to its rivals' customers. 
A) the price allowed only a small profit. 
B) the price would only be profitable if it succeeded in driving a rival out of the market and prices increased afterward. 
C) the price allowed profits that were positive but below those earned by other firms. 
D) it only offered the low price to its rivals' customers.

Question 16

Which form of price regulation increases consumer well-being and allows the firm to stay in business?

Accepted Answer

A) Allow the firm to set its own rate of return. 
B) Set prices equal to marginal cost. 
C) Set prices equal to average cost. 
D) Set lower prices when efficiency improves. 
A) Allow the firm to set its own rate of return. 
B) Set prices equal to marginal cost. 
C) Set prices equal to average cost. 
D) Set lower prices when efficiency improves.

Question 17

Government agencies may fail to identify anticompetitive behavior if

Accepted Answer

A) competitors have been forced out of business due to inefficient production and the inability to keep prices low. 
B) dominant firms raise prices to keep rivals competitive. 
C) cartel members decide to disinherit a member firm. 
D) Wall Street supports lower prices. 
A) competitors have been forced out of business due to inefficient production and the inability to keep prices low. 
B) dominant firms raise prices to keep rivals competitive. 
C) cartel members decide to disinherit a member firm. 
D) Wall Street supports lower prices.

Question 18

The Sherman Act was the first established antitrust law.

Accepted Answer

A) True 
 B)False

Question 19

The antitrust laws are sometimes used by companies to reduce competition in their markets rather than enhance it.

Accepted Answer

A) True 
 B)False

Question 20

The current deregulatory movement began to change laws to deregulation in the

Accepted Answer

A) early 1970s. 
B) late 1970s. 
C) early 1980s. 
D) early 1990s. 
A) early 1970s. 
B) late 1970s. 
C) early 1980s. 
D) early 1990s.

Exam 14: Limiting Market Power: Antitrust and Regulation

Microsoft has been accused of violating an antitrust law pertaining to bundling .

The share of industry output sold by the top four steel producers in the country are 19 percent, 15 percent, 12 percent, and 9 percent, respectively. The four-firm concentration ratio for the steel industry is

Consider an industry consisting of four firms with market shares of 30 percent, 25 percent, 25 percent, and 20 percent. Calculate the Herfindahl Hirschman Index and interpret your result.

Why are the prices of some regulated industries often higher than they would be if there were no regulation?

Universal service may require making a service available in small communities where the limited scale of operations may make costs extremely high.

Following mergers that raised the market shares of two airlines to 79 and 82 percent, respectively, of traffic in their hub cities, prices of service rose and the quantities of service fell, even though in most other markets, prices fell and quantities increased. The result suggests that

Economies of scope are present when a bank also sells insurance and provides brokerage services for stocks and bonds.

If the automobile industry has become highly concentrated and cartelized. To maintain profits, firms may

Price discrimination by a firm is

List appropriate criteria for deciding whether a merger of two firms producing similar products should be permitted.

In most industries, deregulation has led to lower prices.

Modern antitrust policy began in response to

Deregulation of the airline and trucking industry has (i)resulted in considerable entry of new firms or (ii)has forced workers in these industries to make large concessions on wages and working conditions.

While monopoly power can be abused, it can also be used beneficially. What are the major pros and cons of largeness in business?

A firm that charges a very low price would be practicing predatory pricing if

Which form of price regulation increases consumer well-being and allows the firm to stay in business?

Government agencies may fail to identify anticompetitive behavior if

The Sherman Act was the first established antitrust law.

The antitrust laws are sometimes used by companies to reduce competition in their markets rather than enhance it.

The current deregulatory movement began to change laws to deregulation in the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters