Question 1

Holding all else constant, higher prices will:

Accepted Answer

A)  increase the Lerner index. 
B)  decrease the Lerner index. 
C)  have no impact on the Lerner index. 
D)  increase or decrease the Lerner index depending on the relative magnitude of the price increase. 
A)  increase the Lerner index. 
B)  decrease the Lerner index. 
C)  have no impact on the Lerner index. 
D)  increase or decrease the Lerner index depending on the relative magnitude of the price increase.

Question 2

The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -10. Based on the Rothschild approach to measuring market power, we conclude that:

Accepted Answer

A)  the Herfindahl index for this industry is 5. 
B)  the Herfindahl index for this industry is 0.2. 
C)  there is no monopoly power in this industry. 
D)  there is significant monopoly power in this industry. 
A)  the Herfindahl index for this industry is 5. 
B)  the Herfindahl index for this industry is 0.2. 
C)  there is no monopoly power in this industry. 
D)  there is significant monopoly power in this industry.

Question 3

The causal view of an industry is that:

Accepted Answer

A)  market structure causes firms to behave in a certain way. 
B)  market performance causes firms to have a certain structure. 
C)  market performance causes firms to behave in a certain way. 
D)  behavior causes firms to have a certain structure. 
A)  market structure causes firms to behave in a certain way. 
B)  market performance causes firms to have a certain structure. 
C)  market performance causes firms to behave in a certain way. 
D)  behavior causes firms to have a certain structure.

Question 4

An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60. What is the industry's HHI?

Accepted Answer

A)  2,937 
B)  5,654 
C)  10,000 
D)  There is not sufficient information to compute the industry HHI. 
A)  2,937 
B)  5,654 
C)  10,000 
D)  There is not sufficient information to compute the industry HHI.

Question 5

A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:

Accepted Answer

A)  0.33. 
B)  0.50. 
C)  0.67. 
D)  0.75. 
A)  0.33. 
B)  0.50. 
C)  0.67. 
D)  0.75.

Question 6

The industry elasticity of demand for good Y is -3, while the elasticity of demand for an individual manufacturer of good Y is -12. Based on the Rothschild approach to measuring market power, we conclude that:

Accepted Answer

A)  1/4, indicating there is significant monopoly power in this industry. 
B)  1/4, indicating there is little monopoly power in this industry. 
C)  4, indicating there is little monopoly power in this industry. 
D)  None of the answers are correct. 
A)  1/4, indicating there is significant monopoly power in this industry. 
B)  1/4, indicating there is little monopoly power in this industry. 
C)  4, indicating there is little monopoly power in this industry. 
D)  None of the answers are correct.

Question 7

Which of the following measures market power?

Accepted Answer

A)  Lerner index. 
B)  Herfindahl-Hirschman index. 
C)  Rothchild index. 
D)  Lerner index and Rothchild index. 
A)  Lerner index. 
B)  Herfindahl-Hirschman index. 
C)  Rothchild index. 
D)  Lerner index and Rothchild index.

Question 8

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

Accepted Answer

A)  0.20. 
B)  0.50. 
C)  0.33. 
D)  0.75. 
A)  0.20. 
B)  0.50. 
C)  0.33. 
D)  0.75.

Question 9

According to the U.S. Department of Justice Merger Guidelines, a Herfindahl-Hirschman index (HHI) above _________ is associated with a highly concentrated industry. Therefore, if the automobile industry had an HHI of 2,200, then a vertical merger between GM and one of its suppliers likely would be:

Accepted Answer

A)  1,300 and rejected since the HHI is above the acceptable threshold 
B)  2,400 and approved since the HHI is below the acceptable threshold 
C)  1,800 and rejected since the HHI is above the acceptable threshold 
D)  None of the answers are correct 
A)  1,300 and rejected since the HHI is above the acceptable threshold 
B)  2,400 and approved since the HHI is below the acceptable threshold 
C)  1,800 and rejected since the HHI is above the acceptable threshold 
D)  None of the answers are correct

Question 10

In a perfectly competitive market that is operating at maximum efficiency, the Dansby-Willig index would be:

Accepted Answer

A)  zero. 
B)  0.25. 
C)  0.50. 
D)  1.00. 
A)  zero. 
B)  0.25. 
C)  0.50. 
D)  1.00.

Question 11

A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?

Accepted Answer

A)  The market is monopolistic. 
B)  The market is close to perfectly competitive or monopolistically competitive. 
C)  The student made some computational errors. 
D)  There is free entry in the market. 
A)  The market is monopolistic. 
B)  The market is close to perfectly competitive or monopolistically competitive. 
C)  The student made some computational errors. 
D)  There is free entry in the market.

Question 12

C4 and HHI tend to ____________ the concentration in a domestic industry.

Accepted Answer

A)  provide different rankings of 
B)  understate 
C)  overstate 
D)  understate or overstate, depending on the true geographic market 
A)  provide different rankings of 
B)  understate 
C)  overstate 
D)  understate or overstate, depending on the true geographic market

Question 13

In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each. What is the four-firm concentration ratio for this industry?

Accepted Answer

Four-firm

Question 14

The HHI of a local market is usually _____________ that of national markets.

Accepted Answer

A)  lower than 
B)  the same as 
C)  higher than 
D)  twice 
A)  lower than 
B)  the same as 
C)  higher than 
D)  twice

Question 15

A Lerner index of 0 suggests:

Accepted Answer

A)  monopoly. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  perfect competition. 
A)  monopoly. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  perfect competition.

Question 16

Having worked for many of the firms in the petroleum industry, you know that the price elasticity of demand for a representative firm is about -1.25. An industry publication recently reported that the Rothschild index for the petroleum industry is estimated to be 0.88. Based on this information, you know that the price elasticity of demand for the firm you currently work for in the petroleum industry is:

Accepted Answer

A)  -1.42. 
B)  -1.10. 
C)  0.704. 
D)  1.10. 
A)  -1.42. 
B)  -1.10. 
C)  0.704. 
D)  1.10.

Question 17

Alpha Industries operates in a highly competitive market. While there are few other firms in the industry due to the high fixed costs of building plants, rival firms are very aggressive in their pricing strategies. Of the products sold in the industry, over 80 percent have 10 years of patent protection remaining. Does this industry meet an economist's definition of a perfectly competitive industry?

Accepted Answer

No. The conditions for perfect competiti

Question 18

There are five firms in an industry with sales at $7 million, $6 million, $3 million, $2 million, and $2 million, respectively. The four-firm concentration ratio is:

Accepted Answer

A)  0.8. 
B)  0.9. 
C)  1.0. 
D)  1.1. 
A)  0.8. 
B)  0.9. 
C)  1.0. 
D)  1.1.

Question 19

Consider a market characterized by a Herfindahl-Hirschman index of 5,000. One of the firms in this market has a Lerner index of 0.89 and is considering a horizontal merger with a competing firm. Based on this information, it is likely that the U.S. Department of Justice will:

Accepted Answer

A)  approve the merger since the industry is not concentrated and the firm proposing to merge has little market power. 
B)  reject the merger since the industry is highly concentrated, even though the firm proposing the merger has little market power. 
C)  reject the merger since the industry is highly concentrated and the firm proposing the merger has significant market power. 
D)  None of the answers are correct. 
A)  approve the merger since the industry is not concentrated and the firm proposing to merge has little market power. 
B)  reject the merger since the industry is highly concentrated, even though the firm proposing the merger has little market power. 
C)  reject the merger since the industry is highly concentrated and the firm proposing the merger has significant market power. 
D)  None of the answers are correct.

Question 20

Which of the following statements is true?

Accepted Answer

A)  The market structure of an industry frequently changes over time. 
B)  Most horizontal mergers are blocked by the government. 
C)  Most U.S. industries are perfectly competitive. 
D)  Most U.S. industries are monopolies. 
A)  The market structure of an industry frequently changes over time. 
B)  Most horizontal mergers are blocked by the government. 
C)  Most U.S. industries are perfectly competitive. 
D)  Most U.S. industries are monopolies.

Holding all else constant, higher prices will:

The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -10. Based on the Rothschild approach to measuring market power, we conclude that:

The causal view of an industry is that:

An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60. What is the industry's HHI?

A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:

The industry elasticity of demand for good Y is -3, while the elasticity of demand for an individual manufacturer of good Y is -12. Based on the Rothschild approach to measuring market power, we conclude that:

Which of the following measures market power?

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

According to the U.S. Department of Justice Merger Guidelines, a Herfindahl-Hirschman index (HHI) above _________ is associated with a highly concentrated industry. Therefore, if the automobile industry had an HHI of 2,200, then a vertical merger between GM and one of its suppliers likely would be:

In a perfectly competitive market that is operating at maximum efficiency, the Dansby-Willig index would be:

A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?

C₄ and HHI tend to ____________ the concentration in a domestic industry.

In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each. What is the four-firm concentration ratio for this industry?

The HHI of a local market is usually _____________ that of national markets.

A Lerner index of 0 suggests:

There are five firms in an industry with sales at $7 million, $6 million, $3 million, $2 million, and $2 million, respectively. The four-firm concentration ratio is:

Consider a market characterized by a Herfindahl-Hirschman index of 5,000. One of the firms in this market has a Lerner index of 0.89 and is considering a horizontal merger with a competing firm. Based on this information, it is likely that the U.S. Department of Justice will:

Which of the following statements is true?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Exam 7: The Nature of Industry

Holding all else constant, higher prices will:

The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -10. Based on the Rothschild approach to measuring market power, we conclude that:

The causal view of an industry is that:

An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60. What is the industry's HHI?

A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:

The industry elasticity of demand for good Y is -3, while the elasticity of demand for an individual manufacturer of good Y is -12. Based on the Rothschild approach to measuring market power, we conclude that:

Which of the following measures market power?

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

According to the U.S. Department of Justice Merger Guidelines, a Herfindahl-Hirschman index (HHI) above _________ is associated with a highly concentrated industry. Therefore, if the automobile industry had an HHI of 2,200, then a vertical merger between GM and one of its suppliers likely would be:

In a perfectly competitive market that is operating at maximum efficiency, the Dansby-Willig index would be:

A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?

C4 and HHI tend to ____________ the concentration in a domestic industry.

In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each. What is the four-firm concentration ratio for this industry?

The HHI of a local market is usually _____________ that of national markets.

A Lerner index of 0 suggests:

There are five firms in an industry with sales at $7 million, $6 million, $3 million, $2 million, and $2 million, respectively. The four-firm concentration ratio is:

Consider a market characterized by a Herfindahl-Hirschman index of 5,000. One of the firms in this market has a Lerner index of 0.89 and is considering a horizontal merger with a competing firm. Based on this information, it is likely that the U.S. Department of Justice will:

Which of the following statements is true?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

C₄ and HHI tend to ____________ the concentration in a domestic industry.