Question 1

The practice of tying is used to encourage the enforcement of collusive agreements.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly:

Accepted Answer

A)  has no incentive to exit the industry 
B)  will experience a price below average total cost 
C)  may rely on a government subsidy to remain in business 
D)  both B and C are true 
A)  has no incentive to exit the industry 
B)  will experience a price below average total cost 
C)  may rely on a government subsidy to remain in business 
D)  both B and C are true

Question 4

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 5

Economists generally agree that predatory pricing should be a concern for competition policymakers.

Accepted Answer

A) True 
 B)False

Question 6

In 1998 the US Government charged Microsoft with the anti-competitive practice of tying. This was motivated by Microsoft bundling its internet browser into the Windows operating system.

Accepted Answer

A) True 
 B)False

Question 7

Suppose Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc. (CSS Inc.) but not with CompuMart. In this case:

Accepted Answer

A)  CompuMart will benefit from customers who go to CSS Inc. for information about different computers. 
B)  CSS Inc. will sell Peach computers at a lower price than CompuMart. 
C)  the wholesale price of Peach computers will be different for CSS Inc. than it is for CompuMart 
D)  Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. 
A)  CompuMart will benefit from customers who go to CSS Inc. for information about different computers. 
B)  CSS Inc. will sell Peach computers at a lower price than CompuMart. 
C)  the wholesale price of Peach computers will be different for CSS Inc. than it is for CompuMart 
D)  Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A local bank sells two services, cheque accounts and ATM card services. Mr Donethat is willing to pay $8 a month for the bank to service his cheque account and $2 a month for unlimited use of his ATM card. Ms Beenthere is willing to pay only $5 for a cheque account but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost.
-According to the information provided, if the bank is unable to use tying, what is the profit-maximising price to charge for a cheque account?

Accepted Answer

A)  $8 
B)  $5 
C)  $9 
D)  $24 
A)  $8 
B)  $5 
C)  $9 
D)  $24

Question 10

The degree of market failure caused by monopoly:

Accepted Answer

A)  is never a cause of concern 
B)  is always greater than the political failure associated with reducing monopoly problems 
C)  may often be less than the political failure associated with reducing monopoly problems 
D)  is always capable of being fixed by using marginal-cost pricing 
A)  is never a cause of concern 
B)  is always greater than the political failure associated with reducing monopoly problems 
C)  may often be less than the political failure associated with reducing monopoly problems 
D)  is always capable of being fixed by using marginal-cost pricing

Question 11

If regulators impose marginal-cost pricing on a natural monopolist, the government may have to:

Accepted Answer

A)  nationalise the monopolist 
B)  require transparent pricing 
C)  subsidise the monopolist 
D)  tax the final product 
A)  nationalise the monopolist 
B)  require transparent pricing 
C)  subsidise the monopolist 
D)  tax the final product

Question 12

Government policies that aim to improve the efficiency of oligopolistic and monopoly markets are called:

Accepted Answer

A)  competition policy 
B)  welfare policy 
C)  state government policy 
D)  equal opportunity policy 
A)  competition policy 
B)  welfare policy 
C)  state government policy 
D)  equal opportunity policy

Question 13

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 14

The intent of competition laws is to raise social welfare by limiting market power of some firms. To determine whether there has been a gain in social welfare, it is necessary to measure and compare the:

Accepted Answer

A)  benefits from synergies with the social benefits of reduced competition 
B)  benefits from synergies with the social costs of reduced competition 
C)  costs from synergies with the social costs of reduced competition 
D)  costs from synergies with the social benefits of reduced competition 
A)  benefits from synergies with the social benefits of reduced competition 
B)  benefits from synergies with the social costs of reduced competition 
C)  costs from synergies with the social costs of reduced competition 
D)  costs from synergies with the social benefits of reduced competition

Question 15

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 16

In Australia, the key competition regulator is the:

Accepted Answer

A)  Australian Commerce and Consumer Protection Commission 
B)  Australian Competition and Consumer Commission 
C)  Trade Practices Commission 
D)  Australian Stock Exchange 
A)  Australian Commerce and Consumer Protection Commission 
B)  Australian Competition and Consumer Commission 
C)  Trade Practices Commission 
D)  Australian Stock Exchange

Question 17

Competition laws may increase the cost of operating by restricting synergistic mergers.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

Resale price maintenance is a requiremen

Question 20

Public bureaucrats who operate monopolies typically have lower incentives to lower costs.

Accepted Answer

A) True 
 B)False

Exam 17: Competition Policy

The practice of tying is used to encourage the enforcement of collusive agreements.

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

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly:

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

Economists generally agree that predatory pricing should be a concern for competition policymakers.

In 1998 the US Government charged Microsoft with the anti-competitive practice of tying. This was motivated by Microsoft bundling its internet browser into the Windows operating system.

Suppose Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc. (CSS Inc.) but not with CompuMart. In this case:

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

The degree of market failure caused by monopoly:

If regulators impose marginal-cost pricing on a natural monopolist, the government may have to:

Government policies that aim to improve the efficiency of oligopolistic and monopoly markets are called:

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

The intent of competition laws is to raise social welfare by limiting market power of some firms. To determine whether there has been a gain in social welfare, it is necessary to measure and compare the:

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

In Australia, the key competition regulator is the:

Competition laws may increase the cost of operating by restricting synergistic mergers.

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.

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

Public bureaucrats who operate monopolies typically have lower incentives to lower costs.

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

Business Strategy

Monopolistic Competition

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

Five Debates Over Macroeconomic Policy

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