Question 1

Exhibit 25-1
​
 1 B) P2 C) P3 D) a price below P2 and above P1" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 25-1. What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm?

Accepted Answer

A)  P1
B)  P2
C)  P3
D)  a price below P2 and above P1E) A) and B)
F) None of the above

Question 2

The Herfindahl index measures the

Accepted Answer

A)  degree of concentration in an industry.
B)  size of a market in terms of total dollar sales.
C)  degree to which average variable cost is higher than average fixed cost at every level of output.
D)  the amount of deceptive and false advertising in an industry.
E)  none of the aboveF) A) and D)
G) A) and C)

Question 3

The market shares (in percentage terms)  for the 10 firms that comprise an industry are 22, 18, 14, 10, 9, 7, 6, 6, 4, and 4. The Herfindahl index is __________ and the four-firm concentration ratio is __________.

Accepted Answer

A)  1,338; 64 percent
B)  1,338; 36 percent
C)  1,000; 48 percent
D)  1,104; 64 percent
E)  none of the aboveF) All of the above
G) A) and E)

Question 4

Exhibit 25-40
​
 
-Refer to Exhibit 25-4. The problem with average-cost pricing regulation is that once it is in place, there is a tendency for the

Accepted Answer

A)  D curve to shift rightward.
B)  D curve to shift leftward.
C)  ATC curve to shift upward.
D)  ATC curve to shift downward.
E)  MR curve to shift leftward.F) A) and B)
G) B) and D)

Question 5

Exhibit 25-3
  ​
-Refer to Exhibit 25-3. The Justice Department would consider this industry to be

Accepted Answer

A)  concentrated, because the top four firms together control more than 50 percent of the market share.
B)  concentrated, because there are fewer than 15 firms in the industry.
C)  unconcentrated, because there are more than 10 firms in the industry.
D)  moderately concentrated, because the Herfindahl index is between 1,000 and 1,800.
E)  unconcentrated, because the Herfindahl index is less than 1,000.F) D) and E)
G) All of the above

Question 6

If government regulators guarantee a natural monopolist that it will earn normal profits, then the monopolist will

Accepted Answer

A)  achieve resource-allocative efficiency.
B)  charge a price above average total cost.
C)  produce a quantity of output at which marginal revenue equals price.
D)  none of the aboveE) B) and C)
F) A) and D)

Question 7

The Federal Trade Commission Act of 1914 declared illegal

Accepted Answer

A)  interlocking directorates.
B)  anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company.
C)  unfair or overly aggressive methods of competition.
D)  price discounting of goods supplied to large sellers.E) B) and C)
F) None of the above

Question 8

For a natural monopoly firm, the resource-allocative efficient output is 200 units. The highest per-unit price that can be charged for this output is $3. Average total cost at 200 units is $3.50. For the natural monopoly firm that produces and sells 200 units of output,

Accepted Answer

A)  marginal cost is below its average total cost.
B)  it takes losses of $0.50 per unit.
C)  fixed costs must be zero.
D)  a and b
E)  b and cF) B) and D)
G) B) and C)

Question 9

When it comes to network goods, being one of the first companies in a market seems to really pay off.

Accepted Answer

A) True 
 B)False

Question 10

The following statement, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared illegal," is part of the

Accepted Answer

A)  Clayton Act.
B)  Sherman Act.
C)  Federal Trade Commission Act.
D)  Wheeler-Lea Act.
E)  Celler-Kefauver Antimerger Act.F) C) and D)
G) A) and B)

Question 11

The Justice Department most closely examines proposed __________ mergers.

Accepted Answer

A)  horizontal
B)  vertical
C)  conglomerate
D)  internationalE) A) and C)
F) None of the above

Question 12

Which of the following statements is true?

Accepted Answer

A)  The more broadly a market is defined, the less likely a firm will be considered a monopoly.
B)  The Celler-Kefauver Antimerger Act was designed to close the merger loophole that existed in the Clayton Act.
C)  The Sherman Act declared illegal acts that constitute restraint of trade.
D)  a and b
E)  a, b, and cF) A) and C)
G) B) and D)

Question 13

The Robinson-Patman Act of 1936 was passed in an attempt to

Accepted Answer

A)  strengthen unions' powers to deal with businesses during the Great Depression.
B)  close the loophole that remained in the Clayton Act with respect to mergers.
C)  decrease the failure rate of small businesses.
D)  protect consumers from large retailers who were receiving price discounts from their suppliers but were not passing on the price savings to the consumers.
E)  protect all U.S.businesses from foreign competition during the Great Depression.F) A) and D)
G) B) and E)

Question 14

Which of the following is an example of a network good?

Accepted Answer

A)  Facebook
B)  Microsoft Excel
C)  Microsoft Word
D)  all of the aboveE) A) and D)
F) B) and D)

Question 15

The existence of switching costs in the use of computer software means that buyers of computer software are __________ likely to change software programs than would be the case in the absence of switching costs, and therefore, the maker of the software program may have __________ reason to innovate.

Accepted Answer

A)  less; more
B)  less; less
C)  more; more
D)  more; lessE) A) and C)
F) A) and B)

Question 16

If average total costs for a natural monopoly are declining where they intersect the demand curve, and government regulators set the price equal to marginal cost, then the firm will

Accepted Answer

A)  likely earn a profit.
B)  likely break even.
C)  likely suffer a loss.
D)  surely go out of business.
E)  There is not enough information to answer this question.F) A) and E)
G) C) and D)

Question 17

The public interest theory of regulation holds that

Accepted Answer

A)  regulators are seeking to do and will do through regulation what is in the best interest of the public or society at large.
B)  even though regulators seek to do what is in the best interest of the public at large, through regulation they end up doing what is in the best interest of the special interests of the industry that is being regulated.
C)  even though regulators seek to do what is in the best interest of special interests of the industry that is being regulated, through regulation they end up doing what is in the best interest of the public at large.
D)  regulators are seeking to do and will do through regulation what is in the best interest of the special interests of the industry that is being regulated.E) A) and D)
F) B) and D)

Question 18

Natural monopolies can be regulated based on price, profit, or output.

Accepted Answer

A) True 
 B)False

Question 19

Suppose an industry consists of five equal-sized firms. Two of the firms plan to merge. The merger ______________ raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was _____________ and the merger would cause the Herfindahl index to rise by __________.

Accepted Answer

A)  would; between 1,000 and 1,800; more than 100
B)  would; greater than 1,800; more than 100
C)  would not; less than 1,000; less than 300
D)  would not; between 1,000 and 1,800; less than 100E) B) and C)
F) A) and C)

Question 20

The act that set up a commission to deal with "unfair methods of competition" was the

Accepted Answer

A)  Sherman Act.
B)  Wheeler-Lea Act.
C)  Celler-Kefauver Antimerger Act.
D)  Clayton Act.
E)  none of the aboveF) B) and E)
G) B) and D)

Exam 25: Government and Product Markets Antitrust and Regulation

The Justice Department most closely examines proposed __________ mergers.

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The Robinson-Patman Act of 1936 was passed in an attempt to

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Exhibit 25-1 ​ -Refer to Exhibit 25-1. What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm?

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Which of the following statements is true?

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The following statement, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared illegal," is part of the

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If government regulators guarantee a natural monopolist that it will earn normal profits, then the monopolist will

Correct AnswerverifiedShow Answer

The act that set up a commission to deal with "unfair methods of competition" was the

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If average total costs for a natural monopoly are declining where they intersect the demand curve, and government regulators set the price equal to marginal cost, then the firm will

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The public interest theory of regulation holds that

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The market shares (in percentage terms) for the 10 firms that comprise an industry are 22, 18, 14, 10, 9, 7, 6, 6, 4, and 4. The Herfindahl index is __________ and the four-firm concentration ratio is __________.

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Natural monopolies can be regulated based on price, profit, or output.

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The Herfindahl index measures the

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Which of the following is an example of a network good?

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When it comes to network goods, being one of the first companies in a market seems to really pay off.

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Exhibit 25-40 ​ -Refer to Exhibit 25-4. The problem with average-cost pricing regulation is that once it is in place, there is a tendency for the

Correct AnswerverifiedShow Answer

For a natural monopoly firm, the resource-allocative efficient output is 200 units. The highest per-unit price that can be charged for this output is $3. Average total cost at 200 units is $3.50. For the natural monopoly firm that produces and sells 200 units of output,

Correct AnswerverifiedShow Answer

Exhibit 25-3 ​ -Refer to Exhibit 25-3. The Justice Department would consider this industry to be

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The Federal Trade Commission Act of 1914 declared illegal

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Exhibit 25-1 -Refer to Exhibit 25-1. What price is charged if marginal-cost price regulation is imposed on the natural monopoly firm?

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The market shares (in percentage terms) for the 10 firms that comprise an industry are 22, 18, 14, 10, 9, 7, 6, 6, 4, and 4. The Herfindahl index is and the four-firm concentration ratio is .

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Exhibit 25-40 -Refer to Exhibit 25-4. The problem with average-cost pricing regulation is that once it is in place, there is a tendency for the

Correct Answer
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Exhibit 25-3 -Refer to Exhibit 25-3. The Justice Department would consider this industry to be

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