Question 1

Cross-subsidization implies that a loss from one product's sales will be made up by the profit from another product's sales.

Accepted Answer

A) True 
 B)False

Question 2

A monopoly firm operates with declining average cost. If regulators impose marginal cost pricing, the market will

Accepted Answer

A) remain a monopoly but behave like a perfectly competitive industry. 
B) become perfectly competitive. 
C) be entered by additional firms but will not necessarily become perfectly competitive. 
D) maximize consumer surplus. 
A) remain a monopoly but behave like a perfectly competitive industry. 
B) become perfectly competitive. 
C) be entered by additional firms but will not necessarily become perfectly competitive. 
D) maximize consumer surplus.

Question 3

If an industry consists of five firms each with a 20 percent market share, then the Herfindahl-Hirschman index would equal 1,600.

Accepted Answer

A) True 
 B)False

Question 4

Why is regulation necessary to achieve "universal service"?

Accepted Answer

Universal service refers to making a ser

Question 5

"Cream skimming" usually results in

Accepted Answer

A) cross-subsidization of markets. 
B) subsidies to rural consumers of the service. 
C) regulations to provide universal service. 
D) monopoly. 
A) cross-subsidization of markets. 
B) subsidies to rural consumers of the service. 
C) regulations to provide universal service. 
D) monopoly.

Question 6

Prices that maximize the public interest will always allow reasonable profits for firms.

Accepted Answer

A) True 
 B)False

Question 7

Beginning in the mid-1970s, Congress deregulated several industries including airlines and trucking.

Accepted Answer

A) True 
 B)False

Question 8

The most important advantages of bigness will be found in industries that show increasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 9

Service to consumers of deregulated products has generally not diminished.

Accepted Answer

A) True 
 B)False

Question 10

One reason regulators push for higher prices in an industry is to

Accepted Answer

A) prevent excess profits in the industry. 
B) protect the public from excessively low prices. 
C) encourage usage of the good or service. 
D) protect against the demise of existing firms. 
A) prevent excess profits in the industry. 
B) protect the public from excessively low prices. 
C) encourage usage of the good or service. 
D) protect against the demise of existing firms.

Question 11

Compare the advantages and disadvantages of marginal and average cost pricing for natural monopolies.

Accepted Answer

Marginal cost is the correct cost to use

Question 12

The government considers a market to be unconcentrated if its HHI number is less than ____, and highly concentrated if that number exceeds ____.

Accepted Answer

A) 1,000; 2,500 
B) 100; 9,000 
C) 50; 500 
D) 500; 1,300 
A) 1,000; 2,500 
B) 100; 9,000 
C) 50; 500 
D) 500; 1,300

Question 13

What is not an effect of deregulation in the airline and trucking industries?

Accepted Answer

A) Lower prices of many services 
B) Increased entry of new firms into deregulated industries 
C) Lower income to unions working in deregulated industries 
D) Improvements in the quality of services 
A) Lower prices of many services 
B) Increased entry of new firms into deregulated industries 
C) Lower income to unions working in deregulated industries 
D) Improvements in the quality of services

Question 14

The Antitrust Division of the Department of Justice carefully scrutinizes mergers. Why?

Accepted Answer

Mergers can lead to an increase in marke

Question 15

In a market with only one firm (a pure monopoly), the Herfindahl-Hirschman Index (HHI)would equal 10,000.

Accepted Answer

A) True 
 B)False

Question 16

Distinguish between predatory pricing strategy and bundling strategy.

Accepted Answer

Predatory pricing is pricing that threat

Question 17

Discuss some of the reasons why monopoly power is considered undesirable.

Accepted Answer

Some of the reasons are: 
1.Hi

Question 18

When it is cheaper for one firm to produce a particular product, ____ exist(s).

Accepted Answer

A) economies of scale 
B) economies of scope 
C) diminishing marginal returns 
D) cross-subsidization 
A) economies of scale 
B) economies of scope 
C) diminishing marginal returns 
D) cross-subsidization

Question 19

What is not a limitation of antitrust legislation?

Accepted Answer

A) The government seldom wins. 
B) Anticompetitive behavior may resemble vigorous competition. 
C) It prevents firms from challenging their rivals. 
D) The defendant may go bankrupt. 
A) The government seldom wins. 
B) Anticompetitive behavior may resemble vigorous competition. 
C) It prevents firms from challenging their rivals. 
D) The defendant may go bankrupt.

Question 20

List and discuss the importance of the major effects of the deregulation that occurred in the 1980s.

Accepted Answer

Baumol and Blinder list seven effects:

Exam 14: Limiting Market Power: Antitrust and Regulation

Cross-subsidization implies that a loss from one product's sales will be made up by the profit from another product's sales.

A monopoly firm operates with declining average cost. If regulators impose marginal cost pricing, the market will

If an industry consists of five firms each with a 20 percent market share, then the Herfindahl-Hirschman index would equal 1,600.

Why is regulation necessary to achieve "universal service"?

"Cream skimming" usually results in

Prices that maximize the public interest will always allow reasonable profits for firms.

Beginning in the mid-1970s, Congress deregulated several industries including airlines and trucking.

The most important advantages of bigness will be found in industries that show increasing returns to scale.

Service to consumers of deregulated products has generally not diminished.

One reason regulators push for higher prices in an industry is to

Compare the advantages and disadvantages of marginal and average cost pricing for natural monopolies.

The government considers a market to be unconcentrated if its HHI number is less than ____, and highly concentrated if that number exceeds ____.

What is not an effect of deregulation in the airline and trucking industries?

The Antitrust Division of the Department of Justice carefully scrutinizes mergers. Why?

In a market with only one firm (a pure monopoly), the Herfindahl-Hirschman Index (HHI)would equal 10,000.

Distinguish between predatory pricing strategy and bundling strategy.

Discuss some of the reasons why monopoly power is considered undesirable.

When it is cheaper for one firm to produce a particular product, ____ exist(s).

What is not a limitation of antitrust legislation?

List and discuss the importance of the major effects of the deregulation that occurred in the 1980s.

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

The government considers a market to be unconcentrated if its HHI number is less than , and highly concentrated if that number exceeds .