Question 1

In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller

Accepted Answer

A) the greater the difference between marginal cost and price. 
B) the smaller the difference between marginal cost and average total cost. 
C) the smaller the difference between marginal cost and price. 
D) the greater the difference between marginal cost and average revenue. 
A) the greater the difference between marginal cost and price. 
B) the smaller the difference between marginal cost and average total cost. 
C) the smaller the difference between marginal cost and price. 
D) the greater the difference between marginal cost and average revenue.

Question 2

The Sherman Act prohibited

Accepted Answer

A) marginal cost pricing. 
B) setting price above marginal cost. 
C) collusive price agreements among rival sellers. 
D) selling below average total cost. 
A) marginal cost pricing. 
B) setting price above marginal cost. 
C) collusive price agreements among rival sellers. 
D) selling below average total cost.

Question 3

Consider two industries,industry W and industry X.In industry W there are five companies,each with a market share of 20% of total sales.In industry X,there are six companies.One company has a 50% market share and each of the other five firms has a market share of 10%.
a.Calculate the four-firm concentration ratio for each industry.
b.Calculate the Herfindahl-Hirschman Index (HHI)for each industry.
c.What do the values of the two concentration measures imply about the degree of market power in the two industries?

Accepted Answer

a.The concentration ratio in industry W

Question 4

A monopoly differs from monopolistic competition in that

Accepted Answer

A) a monopoly has market power while a firm in monopolistic competition does not have any market power. 
B) a monopoly can never make a loss but a firm in monopolistic competition can. 
C) in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure. 
D) a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve. 
A) a monopoly has market power while a firm in monopolistic competition does not have any market power. 
B) a monopoly can never make a loss but a firm in monopolistic competition can. 
C) in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure. 
D) a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.

Question 5

Identify two ways by which the government controls monopolies?

Accepted Answer

The government control monopol

Question 6

Whenever a firm can charge a price greater than marginal cost

Accepted Answer

A) the firm must be a monopolist. 
B) there is some loss of economic efficiency. 
C) consumers have the ability to choose a close substitute. 
D) the firm will earn economic profits. 
A) the firm must be a monopolist. 
B) there is some loss of economic efficiency. 
C) consumers have the ability to choose a close substitute. 
D) the firm will earn economic profits.

Question 7

When the government wants to give an exclusive right to one firm to produce a product,it

Accepted Answer

A) imposes a tariff on imports of the product. 
B) imposes a quota on imports of the product. 
C) grants a patent or copyright to an individual or firm. 
D) uses antitrust laws to keep other firms from entering the market. 
A) imposes a tariff on imports of the product. 
B) imposes a quota on imports of the product. 
C) grants a patent or copyright to an individual or firm. 
D) uses antitrust laws to keep other firms from entering the market.

Question 8

The Clayton Act prohibited

Accepted Answer

A) all vertical mergers. 
B) all horizontal mergers. 
C) any merger if its effect was to substantially lessen competition or create a monopoly. 
D) all conglomerate mergers. 
A) all vertical mergers. 
B) all horizontal mergers. 
C) any merger if its effect was to substantially lessen competition or create a monopoly. 
D) all conglomerate mergers.

Question 9

A merger between firms at different stages of production of a good

Accepted Answer

A) is a vertical merger. 
B) was made illegal by the Sherman Act. 
C) was made legal by the Clayton Act. 
D) is a horizontal merger. 
A) is a vertical merger. 
B) was made illegal by the Sherman Act. 
C) was made legal by the Clayton Act. 
D) is a horizontal merger.

Question 10

Some economists believe that the economy benefits from firms having market power.Which of the following is an argument that has been made to support this position?

Accepted Answer

A) Large firms are better able than small firms to spend funds on research and development required to develop new products. 
B) Competition is very rare in the U.S.economy and few new products are produced by smaller,competitive firms. 
C) Research has shown that the deadweight loss from monopolies is a small percentage of the value of production in the United States. 
D) Large firms can afford to lobby the U.S.government in order to impose restrictions on imports and reduce the outsourcing of jobs to other countries. 
A) Large firms are better able than small firms to spend funds on research and development required to develop new products. 
B) Competition is very rare in the U.S.economy and few new products are produced by smaller,competitive firms. 
C) Research has shown that the deadweight loss from monopolies is a small percentage of the value of production in the United States. 
D) Large firms can afford to lobby the U.S.government in order to impose restrictions on imports and reduce the outsourcing of jobs to other countries.

Question 11

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopolist will increase the price of its product to cover its higher cost.

Accepted Answer

A) True 
 B)False

Question 12

The United States Post Office

Accepted Answer

A) faces no competition for its mail services. 
B) has a monopoly in the provision of first-class mail service. 
C) can safely ignore the prices for mail services charged by its rivals such as FedEx and UPS. 
D) is an example of a monopoly that results from the ownership of a key resource: first class mail service. 
A) faces no competition for its mail services. 
B) has a monopoly in the provision of first-class mail service. 
C) can safely ignore the prices for mail services charged by its rivals such as FedEx and UPS. 
D) is an example of a monopoly that results from the ownership of a key resource: first class mail service.

Question 13

One reason patent protection is vitally important to pharmaceutical firms is

Accepted Answer

A) successful new drugs are not profitable.If firms are not granted patents many would go out of business and health care would be severely diminished. 
B) the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly.Patents enable firms to recover costs incurred during this process. 
C) that taxes on profits from drugs are very high;profits from patent protection enable firms to pay these taxes. 
D) the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business.Profits from patents are needed to pay these labor costs. 
A) successful new drugs are not profitable.If firms are not granted patents many would go out of business and health care would be severely diminished. 
B) the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly.Patents enable firms to recover costs incurred during this process. 
C) that taxes on profits from drugs are very high;profits from patent protection enable firms to pay these taxes. 
D) the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business.Profits from patents are needed to pay these labor costs.

Question 14

Consider an industry that is made up of nine firms each with a market share (percent of sales)as follows: a.Firm A: 30%
B.Firm B: 20%
C.Firms C,D,and E: 10% each
D.Firms F,G,H,and J: 5% each
What is the value of the four-firm concentration ratio and how is the industry categorized?

Accepted Answer

A) 50%;monopolistic competition 
B) 70%;oligopoly 
C) 75%;oligopoly 
D) 80%;strongly oligopolistic 
A) 50%;monopolistic competition 
B) 70%;oligopoly 
C) 75%;oligopoly 
D) 80%;strongly oligopolistic

Question 15

A patent

Accepted Answer

A) grants the creator of a book,film,or piece of music the exclusive right to use the creation for 20 years. 
B) grants the creator of a book,film,or piece of music the exclusive right to use the creation during the creator's lifetime. 
C) gives a firm the exclusive right to a new product for 20 years from the date the product is invented. 
D) gives a firm the exclusive right to a new product during the product inventor's lifetime. 
A) grants the creator of a book,film,or piece of music the exclusive right to use the creation for 20 years. 
B) grants the creator of a book,film,or piece of music the exclusive right to use the creation during the creator's lifetime. 
C) gives a firm the exclusive right to a new product for 20 years from the date the product is invented. 
D) gives a firm the exclusive right to a new product during the product inventor's lifetime.

Question 16

In the short run,even if a monopoly's total revenue does not cover its variable costs,it should continue to produce because ultimately in the long run,the monopoly will start earning profits.

Accepted Answer

A) True 
 B)False

Question 17

A Herfindahl-Hirschman Index is calculated by

Accepted Answer

A) summing the amount of sales by the four largest firms and dividing by total industry sales. 
B) dividing the number of firms wanting to merge by the total number in the industry. 
C) summing the squares of the market shares of each firm in the industry. 
D) dividing the advertising expenditures of the firms that want to merge by total industry advertising expenditures. 
A) summing the amount of sales by the four largest firms and dividing by total industry sales. 
B) dividing the number of firms wanting to merge by the total number in the industry. 
C) summing the squares of the market shares of each firm in the industry. 
D) dividing the advertising expenditures of the firms that want to merge by total industry advertising expenditures.

Question 18

The lawsuit the Justice Department brought against Apple regarding the pricing of e-books for its iPad is an example of attempts by the government

Accepted Answer

A) to prevent vertical mergers which would significantly reduce competition. 
B) to prevent horizontal mergers which would significantly reduce competition. 
C) to regulate a natural monopoly by establishing government-regulated prices. 
D) to keep firms from artificially restricting competition to raise prices. 
A) to prevent vertical mergers which would significantly reduce competition. 
B) to prevent horizontal mergers which would significantly reduce competition. 
C) to regulate a natural monopoly by establishing government-regulated prices. 
D) to keep firms from artificially restricting competition to raise prices.

Question 19

Figure 15-10  
-Refer to Figure 15-10.What is the area that represents producer surplus under a monopoly?

Accepted Answer

A) the triangle 0P2E 
B) the triangle 0P3H 
C) the trapezium 0P1FH 
D) the rectangle P1P3HF 
A) the triangle 0P2E 
B) the triangle 0P3H 
C) the trapezium 0P1FH 
D) the rectangle P1P3HF

Question 20

If you own the only bookstore in a small town,do you have a monopoly?

Accepted Answer

Because consumers in your town could buy

Exam 15: Monopoly and Antitrust Policy

In evaluating the degree of economic efficiency in a market,we can state that the size of the deadweight loss in a market will be smaller

The Sherman Act prohibited

A monopoly differs from monopolistic competition in that

Identify two ways by which the government controls monopolies?

Whenever a firm can charge a price greater than marginal cost

When the government wants to give an exclusive right to one firm to produce a product,it

The Clayton Act prohibited

A merger between firms at different stages of production of a good

Some economists believe that the economy benefits from firms having market power.Which of the following is an argument that has been made to support this position?

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopolist will increase the price of its product to cover its higher cost.

The United States Post Office

One reason patent protection is vitally important to pharmaceutical firms is

Consider an industry that is made up of nine firms each with a market share (percent of sales)as follows: a.Firm A: 30% B.Firm B: 20% C.Firms C,D,and E: 10% each D.Firms F,G,H,and J: 5% each What is the value of the four-firm concentration ratio and how is the industry categorized?

A patent

In the short run,even if a monopoly's total revenue does not cover its variable costs,it should continue to produce because ultimately in the long run,the monopoly will start earning profits.

A Herfindahl-Hirschman Index is calculated by

The lawsuit the Justice Department brought against Apple regarding the pricing of e-books for its iPad is an example of attempts by the government

Figure 15-10 -Refer to Figure 15-10.What is the area that represents producer surplus under a monopoly?

If you own the only bookstore in a small town,do you have a monopoly?

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

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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