Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 = (302 + 252 + 252 + 202)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Railroads have received significant attention from regulators because

Accepted Answer

A) railroads enjoy significant economies of scale. 
B) conditions in the railroad industry are conducive to destructive competition. 
C) regulators would like to ensure universal service to all potential railroad customers. 
D) All of the above are correct. 
A) railroads enjoy significant economies of scale. 
B) conditions in the railroad industry are conducive to destructive competition. 
C) regulators would like to ensure universal service to all potential railroad customers. 
D) All of the above are correct.

Question 6

It is easy to discern the difference between vigorous competition and the exercise of monopoly power.

Accepted Answer

A) True 
 B)False

Question 7

"Anticompetitive practices" are actions by a powerful firm that:

Accepted Answer

A) threaten to destroy competitors 
B) force competitors to compete less vigorously 
C) ​prevent the entry of new rivals. 
D) ​all of these are true. 
A) threaten to destroy competitors 
B) force competitors to compete less vigorously 
C) ​prevent the entry of new rivals. 
D) ​all of these are true.

Question 8

In the United States, price-fixing arrangements among firms are

Accepted Answer

A) legal. 
B) illegal only if a court decides that the prices fixed are unreasonable. 
C) illegal only if a court has concrete evidence that the firms explicitly colluded. 
D) illegal. 
A) legal. 
B) illegal only if a court decides that the prices fixed are unreasonable. 
C) illegal only if a court has concrete evidence that the firms explicitly colluded. 
D) illegal.

Question 9

Many regulated industries are not pure monopolies.

Accepted Answer

A) True 
 B)False

Question 10

The prices that are in the public's best interest will

Accepted Answer

A) always allow the regulated firm to break even. 
B) always allow the regulated firm to make positive economic profits. 
C) sometimes leave the regulated firm with economic losses. 
D) leave the regulated firm with profits that are about 10 percent higher than those of other firms. 
A) always allow the regulated firm to break even. 
B) always allow the regulated firm to make positive economic profits. 
C) sometimes leave the regulated firm with economic losses. 
D) leave the regulated firm with profits that are about 10 percent higher than those of other firms.

Question 11

An economist is told that concentration in the cement industry has increased.He can safely conclude that

Accepted Answer

A) cement production must have fallen in the industry. 
B) competition in the cement industry has decreased. 
C) there are fewer cement producers than before. 
D) All of the above are correct. 
A) cement production must have fallen in the industry. 
B) competition in the cement industry has decreased. 
C) there are fewer cement producers than before. 
D) All of the above are correct.

Question 12

Explain why firms that enjoy economies of scale or scope are candidates for regulation.

Accepted Answer

Where economies of scale exist, one firm

Question 13

What is the primary threat of monopoly and oligopoly to the public interest?

Accepted Answer

A) Cartels 
B) Predatory pricing 
C) Price wars 
D) Monopoly power 
A) Cartels 
B) Predatory pricing 
C) Price wars 
D) Monopoly power

Question 14

If there are strong economies of scale and scope, then society

Accepted Answer

A) will not be able to prevent overt collusion. 
B) will benefit from establishing a cartel. 
C) cannot benefit from regulation of a natural monopoly. 
D) will not be able to preserve free competition. 
A) will not be able to prevent overt collusion. 
B) will benefit from establishing a cartel. 
C) cannot benefit from regulation of a natural monopoly. 
D) will not be able to preserve free competition.

Question 15

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 16

The four-firm concentration ratio for an industry is

Accepted Answer

A) the number of firms in the industry, divided by four. 
B) the share of industry output sold by the four largest firms in the industry. 
C) the percentage of total industry profits claimed by the four largest firms. 
D) the share of industry output sold by the fourth largest firm in the industry. 
A) the number of firms in the industry, divided by four. 
B) the share of industry output sold by the four largest firms in the industry. 
C) the percentage of total industry profits claimed by the four largest firms. 
D) the share of industry output sold by the fourth largest firm in the industry.

Question 17

When firms have had to defend themselves against the charge that they have adopted unjustifiably low prices either to drive a competitor out of business or to prevent the entry of a rival, they have been accused of

Accepted Answer

A) creating a trust. 
B) conspiracy. 
C) predatory pricing. 
D) price discrimination. 
A) creating a trust. 
B) conspiracy. 
C) predatory pricing. 
D) price discrimination.

Question 18

Deregulation of the airline and trucking industries was followed by the creation of many new firms.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Briefly and concisely define the following terms:
a.price discrimination
b.tying contracts
c.concentration ratio
d.market power

Accepted Answer

Comprehension
a.Price discrimination occ

Exam 13: Limiting Market Power: Regulation and Antitrust

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

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.

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.

Railroads have received significant attention from regulators because

It is easy to discern the difference between vigorous competition and the exercise of monopoly power.

"Anticompetitive practices" are actions by a powerful firm that:

In the United States, price-fixing arrangements among firms are

Many regulated industries are not pure monopolies.

The prices that are in the public's best interest will

An economist is told that concentration in the cement industry has increased.He can safely conclude that

Explain why firms that enjoy economies of scale or scope are candidates for regulation.

What is the primary threat of monopoly and oligopoly to the public interest?

If there are strong economies of scale and scope, then society

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

The four-firm concentration ratio for an industry is

When firms have had to defend themselves against the charge that they have adopted unjustifiably low prices either to drive a competitor out of business or to prevent the entry of a rival, they have been accused of

Deregulation of the airline and trucking industries was followed by the creation of many new firms.

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

Briefly and concisely define the following terms: a.price discrimination b.tying contracts c.concentration ratio d.market power

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

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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