Question 1

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Harberger found that

Accepted Answer

A) the loss of economic efficiency in the U.S.economy due to market power was less than 1 percent of the value of production. 
B) because of the increase in the average size of firms since World War II,the loss of economic efficiency has been relatively large,about 10 percent of the value of total production in the United States. 
C) although the number of monopolies was small,the large number of other non-competitive firms in the United States resulted in a large loss of economic efficiency,about 20 percent of the value of total production. 
D) the loss of economic efficiency in the U.S.economy due to market power was small around 1973,about 1 percent of the value of production,but has since grown to about 10 percent. 
A) the loss of economic efficiency in the U.S.economy due to market power was less than 1 percent of the value of production. 
B) because of the increase in the average size of firms since World War II,the loss of economic efficiency has been relatively large,about 10 percent of the value of total production in the United States. 
C) although the number of monopolies was small,the large number of other non-competitive firms in the United States resulted in a large loss of economic efficiency,about 20 percent of the value of total production. 
D) the loss of economic efficiency in the U.S.economy due to market power was small around 1973,about 1 percent of the value of production,but has since grown to about 10 percent.

Question 2

Table 15-2
   Assume Table 15-2 gives the monthly demand and costs for subscriptions to basic cable for Comcast,a cable television monopoly in Philadelphia.
-Refer to Table 15-2.If Comcast maximizes its profits how much profit will it earn?

Accepted Answer

A) $84 
B) $40 
C) $4 
D) Comcast will break even. 
A) $84 
B) $40 
C) $4 
D) Comcast will break even.

Question 3

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Accepted Answer

A) For the first time horizontal mergers were allowed - with government approval - and vertical mergers were allowed without need for approval from the government. 
B) For the first time concentration ratios were used to evaluate the degree of competition in the industries of firms that proposed mergers. 
C) The Division began to systematically consider the economic consequences of proposed mergers. 
D) Proposed mergers no longer needed the approval of the Federal Trade Commission or the court system. 
A) For the first time horizontal mergers were allowed - with government approval - and vertical mergers were allowed without need for approval from the government. 
B) For the first time concentration ratios were used to evaluate the degree of competition in the industries of firms that proposed mergers. 
C) The Division began to systematically consider the economic consequences of proposed mergers. 
D) Proposed mergers no longer needed the approval of the Federal Trade Commission or the court system.

Question 4

Several states have passed laws that allowed greater competition in the cable television market.A likely outcome of these laws is

Accepted Answer

A) an increase in the number of state laws that allow for greater competition in the satellite television market. 
B) an increase in campaign contributions from cable television company officials to state legislators. 
C) lower prices for cable television and an improvement in the services cable companies offer to their customers. 
D) higher cable prices but an increase in the number of stations offered by cable television companies to their customers. 
A) an increase in the number of state laws that allow for greater competition in the satellite television market. 
B) an increase in campaign contributions from cable television company officials to state legislators. 
C) lower prices for cable television and an improvement in the services cable companies offer to their customers. 
D) higher cable prices but an increase in the number of stations offered by cable television companies to their customers.

Question 5

The Clayton Act is an antitrust law that was passed to

Accepted Answer

A) outlaw monopolization. 
B) address loopholes in the Sherman Act. 
C) prohibit charging buyers different prices if the result would reduce competition. 
D) toughen restrictions on mergers by prohibiting mergers that reduce competition. 
A) outlaw monopolization. 
B) address loopholes in the Sherman Act. 
C) prohibit charging buyers different prices if the result would reduce competition. 
D) toughen restrictions on mergers by prohibiting mergers that reduce competition.

Question 6

Why are laws aimed at regulating monopolies called "antitrust" laws?

Accepted Answer

A) The rise of large firms (e.g.,Standard Oil)in the late 1800s in the United States caused consumers to lose trust in private business. 
B) "Trust" was a word in Old English that meant monopoly in the Middle Ages.Therefore,"antitrust" is a term that means "against monopoly." 
C) In the late 1800s,firms in several industries formed trusts; the firms were independent but gave voting control to a board of trustees.Antitrust laws were passed to regulate these trusts. 
D) In the late 1800s,firms in several industries formed trusts; they were called "trusts" because when corporate officials were questioned about their business they would clam that business was good for the country and that they should trusted. 
A) The rise of large firms (e.g.,Standard Oil)in the late 1800s in the United States caused consumers to lose trust in private business. 
B) "Trust" was a word in Old English that meant monopoly in the Middle Ages.Therefore,"antitrust" is a term that means "against monopoly." 
C) In the late 1800s,firms in several industries formed trusts; the firms were independent but gave voting control to a board of trustees.Antitrust laws were passed to regulate these trusts. 
D) In the late 1800s,firms in several industries formed trusts; they were called "trusts" because when corporate officials were questioned about their business they would clam that business was good for the country and that they should trusted.

Question 7

The government estimated that by allowing the merger between AT&T and T-Mobile to go through,the Herfindahl Hirschman Index for the national market would increase by nearly 700 points to about 3,100.According to the merger standards of the Department of Justice and the FTC,a Herfindahl Hirschman index of 3,100 indicates that the market is ________ concentrated,and the increase of nearly 700 points indicates that the merger ________ be challenged.

Accepted Answer

A) moderately; may 
B) moderately; will 
C) highly; may 
D) highly; will likely 
A) moderately; may 
B) moderately; will 
C) highly; may 
D) highly; will likely

Question 8

Which of the following statements is true?

Accepted Answer

A) If a tax is imposed on a product sold by a monopolist,the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B) A monopolist will always charge the highest possible price. 
C) If a tax is imposed on a product sold by a monopolist,the monopolist can increase its price to pass along the entire tax to consumers. 
D) Because a monopolist faces no competition,the demand for its product is perfectly inelastic. 
A) If a tax is imposed on a product sold by a monopolist,the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. 
B) A monopolist will always charge the highest possible price. 
C) If a tax is imposed on a product sold by a monopolist,the monopolist can increase its price to pass along the entire tax to consumers. 
D) Because a monopolist faces no competition,the demand for its product is perfectly inelastic.

Question 9

A monopoly firm's demand curve

Accepted Answer

A) is the same as the market demand curve. 
B) is perfectly inelastic. 
C) is more inelastic than the demand curve for the product. 
D) is inelastic at high prices and elastic at lower prices. 
A) is the same as the market demand curve. 
B) is perfectly inelastic. 
C) is more inelastic than the demand curve for the product. 
D) is inelastic at high prices and elastic at lower prices.

Question 10

Andrea Wong owns the only Chinese restaurant in a small town that is also home to a Burger King,an Applebee's and a Popeye's.Using a broad definition of a monopoly,Andrea has a monopoly.

Accepted Answer

A) True 
 B)False

Question 11

Figure 15-5   Figure 15-5 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-5.What is the amount of consumer surplus if,instead of monopoly,the industry was organized as a perfectly competitive industry?

Accepted Answer

A) $21 
B) $124 
C) $186 
D) $332 
A) $21 
B) $124 
C) $186 
D) $332

Question 12

A profit-maximizing monopoly produces a lower output level than would be produced if the
industry was perfectly competitive.

Accepted Answer

A) True 
 B)False

Question 13

"Being the only seller in the market,the monopolist can choose any price and quantity it desires." Evaluate this statement: is it true or false? Explain your answer.

Accepted Answer

The statement is false.The monopolist ca

Question 14

Which two factors make regulating mergers complicated?

Accepted Answer

A) First,firms may lobby government officials to influence their decision to approve the merger.Second,by the time the government officials reach a decision regarding the merger,the firms often decide not to merge. 
B) First,the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers.Second,by law,government officials are not allowed to consider the impact of foreign trade (exports and imports)on the degree of competition in the markets of the merged firms. 
C) First,the Federal Trade Commission and the Antitrust Division of the U.S.Department of Justice must both approve mergers.Second,the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D) First,it is not always clear what market firms are in.Second,the newly merged firm might be more efficient than the merging firms were individually. 
A) First,firms may lobby government officials to influence their decision to approve the merger.Second,by the time the government officials reach a decision regarding the merger,the firms often decide not to merge. 
B) First,the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers.Second,by law,government officials are not allowed to consider the impact of foreign trade (exports and imports)on the degree of competition in the markets of the merged firms. 
C) First,the Federal Trade Commission and the Antitrust Division of the U.S.Department of Justice must both approve mergers.Second,the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. 
D) First,it is not always clear what market firms are in.Second,the newly merged firm might be more efficient than the merging firms were individually.

Question 15

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

Accepted Answer

A) most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B) prices remain high without patent protection because of a lack of competition.Firms that are not granted patents cannot compete with firms that are granted patents. 
C) other firms are free to produce chemically identical drugs.Competition reduces the profits that had been earned by the firms that received patents. 
D) firms will find ways to obtain additional patent protection - often by making cosmetic changes in drugs that were patented - so that they can continue charging high prices. 
A) most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B) prices remain high without patent protection because of a lack of competition.Firms that are not granted patents cannot compete with firms that are granted patents. 
C) other firms are free to produce chemically identical drugs.Competition reduces the profits that had been earned by the firms that received patents. 
D) firms will find ways to obtain additional patent protection - often by making cosmetic changes in drugs that were patented - so that they can continue charging high prices.

Question 16

A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.

Accepted Answer

A) True 
 B)False

Question 17

For years the Paul Ecke Ranch had a monopoly on poinsettias.What was the reason for the monopoly the Ranch had on poinsettia sales?

Accepted Answer

A) The Paul Ecke Ranch was granted a public franchise which made it the sole legal provider of poinsettias. 
B) Paul Ecke discovered a technique for growing poinsettias that had more leaves and were more colorful than other poinsettias. 
C) The Paul Ecke Ranch was granted a patent that gave it the exclusive right to produce and sell poinsettias. 
D) The Paul Ecke Ranch was able to take advantage of network externalities in supplying poinsettias. 
A) The Paul Ecke Ranch was granted a public franchise which made it the sole legal provider of poinsettias. 
B) Paul Ecke discovered a technique for growing poinsettias that had more leaves and were more colorful than other poinsettias. 
C) The Paul Ecke Ranch was granted a patent that gave it the exclusive right to produce and sell poinsettias. 
D) The Paul Ecke Ranch was able to take advantage of network externalities in supplying poinsettias.

Question 18

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

Accepted Answer

A) government antitrust laws. 
B) the pricing decisions of its suppliers. 
C) the pricing decisions of firms that produce complementary products. 
D) the actions of all other firms. 
A) government antitrust laws. 
B) the pricing decisions of its suppliers. 
C) the pricing decisions of firms that produce complementary products. 
D) the actions of all other firms.

Question 19

A price maker is

Accepted Answer

A) a person who actively seeks out the best price for a product that he or she wishes to buy. 
B) a firm that has some control over the price of the product it sells. 
C) a firm that is able to sell any quantity at the highest possible price. 
D) a consumer who participates in an auction where she announces her willingness to pay for a product. 
A) a person who actively seeks out the best price for a product that he or she wishes to buy. 
B) a firm that has some control over the price of the product it sells. 
C) a firm that is able to sell any quantity at the highest possible price. 
D) a consumer who participates in an auction where she announces her willingness to pay for a product.

Question 20

A monopolist currently sells 18 units of a good.If marginal revenue on the last unit sold is $117,then the price of the good must be less than $117.

Accepted Answer

A) True 
 B)False

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Harberger found that

Table 15-2 Assume Table 15-2 gives the monthly demand and costs for subscriptions to basic cable for Comcast,a cable television monopoly in Philadelphia. -Refer to Table 15-2.If Comcast maximizes its profits how much profit will it earn?

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Several states have passed laws that allowed greater competition in the cable television market.A likely outcome of these laws is

The Clayton Act is an antitrust law that was passed to

Why are laws aimed at regulating monopolies called "antitrust" laws?

Which of the following statements is true?

A monopoly firm's demand curve

Andrea Wong owns the only Chinese restaurant in a small town that is also home to a Burger King,an Applebee's and a Popeye's.Using a broad definition of a monopoly,Andrea has a monopoly.

Figure 15-5 Figure 15-5 shows the cost and demand curves for a monopolist. -Refer to Figure 15-5.What is the amount of consumer surplus if,instead of monopoly,the industry was organized as a perfectly competitive industry?

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

"Being the only seller in the market,the monopolist can choose any price and quantity it desires." Evaluate this statement: is it true or false? Explain your answer.

Which two factors make regulating mergers complicated?

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.

For years the Paul Ecke Ranch had a monopoly on poinsettias.What was the reason for the monopoly the Ranch had on poinsettia sales?

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

A price maker is

A monopolist currently sells 18 units of a good.If marginal revenue on the last unit sold is $117,then the price of the good must be less than $117.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Exam 15: Monopoly and Antitrust Policy

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power.Harberger found that

Table 15-2 Assume Table 15-2 gives the monthly demand and costs for subscriptions to basic cable for Comcast,a cable television monopoly in Philadelphia. -Refer to Table 15-2.If Comcast maximizes its profits how much profit will it earn?

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Several states have passed laws that allowed greater competition in the cable television market.A likely outcome of these laws is

The Clayton Act is an antitrust law that was passed to

Why are laws aimed at regulating monopolies called "antitrust" laws?

Which of the following statements is true?

A monopoly firm's demand curve

Andrea Wong owns the only Chinese restaurant in a small town that is also home to a Burger King,an Applebee's and a Popeye's.Using a broad definition of a monopoly,Andrea has a monopoly.

Figure 15-5 Figure 15-5 shows the cost and demand curves for a monopolist. -Refer to Figure 15-5.What is the amount of consumer surplus if,instead of monopoly,the industry was organized as a perfectly competitive industry?

A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

"Being the only seller in the market,the monopolist can choose any price and quantity it desires." Evaluate this statement: is it true or false? Explain your answer.

Which two factors make regulating mergers complicated?

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

A virtuous cycle refers to the development of new products that follows when a monopoly earns economic profits.

For years the Paul Ecke Ranch had a monopoly on poinsettias.What was the reason for the monopoly the Ranch had on poinsettia sales?

A narrow definition of monopoly is that a firm is a monopoly if it can ignore

A price maker is

A monopolist currently sells 18 units of a good.If marginal revenue on the last unit sold is $117,then the price of the good must be less than $117.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters