978-1259723223 Test Bank TBChap021 Part 2

21–21

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AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D if f i c u l t y : 02 Medium

Learning Objective: 21–02 Describe some of the key issues relating to the interpretation

and application of antitrust laws.

Test Bank: I

Topic: Antitrust Policy: Issues and Impacts

53.

A firm charged with monopolizing a market is less likely to be convicted if

D.

it sells its product to other firms, rather than directly to consumers.

54.

Price-fixing is considered to be a per se violation of the antitrust laws because

A.

a guilty verdict requires proof of injury to consumers.

55.

Conspiracies to fix prices are

A.

illegal under the Clayton Act.

56.

Which of the following is correct?

D.

Conglomerate mergers occur when two or more firms at various stages in a good’s

production are combined.

57.

Which one of the following is not correct?

A.

In antitrust cases defendants attempt to define the relevant market broadly.

21–23

written consent of McGraw-Hill Education.

Learning Objective: 21–02 Describe some of the key issues relating to the interpretation

and application of antitrust laws.

Test Bank: I

Topic: Antitrust Policy: Issues and Impacts

58.

Antitrust authorities are least likely to take action against

D.

price-fixing.

59.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. The

Herfindahl

index for Cappa is

C. 100,000.

D. 5,000.

21–24

written consent of McGraw-Hill Education.

Learning Objective: 21–02 Describe some of the key issues relating to the interpretation

and application of antitrust laws.

Test Bank: I

Topic: Antitrust Policy: Issues and Impacts

Type: Table

60.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. The industry

with the greatest market power as measured by the Herfindahl index is

A. Alpha.

61.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. A merger

between Firm 2 and Firm 3 in Alpha would be a

A. vertical merger.

62.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. A merger

between Firm 1 in Alpha and Firm 2 in Delta would be a

A.

vertical merger.

21–26

written consent of McGraw-Hill Education.

Type: Table

63.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. The

government

would be most likely to challenge a merger between

A.

Firm 1 in Alpha and Firm 6 in Delta.

64.

Market Share of Firms in Industry

Industry

1

2

3

4

5

6

Alpha

30

20

–

Beta

80

10

5

3

1

Cappa

25

–

Delta

20

10

The table shows market shares of firms in hypothetical industries. Assume these are distinct

industries with no buyer-seller relationships or competition among them. A

structuralist

would most likely assert that there is a violation of antitrust law in which industry?

A. Alpha

65.

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10

percent, respectively. The Herfindahl index for the industry is

A. 1,900.

66.

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a

merger. The U.S. Justice Department concludes the merger will boost the index to 5,500.

The

antitrust authorities will most likely

A.

ignore this merger because of the relatively small increase in the Herfindahl index.

21–28

written consent of McGraw-Hill Education.

Learning Objective: 21–02 Describe some of the key issues relating to the interpretation

and application of antitrust laws.

Test Bank: I

Topic: Antitrust Policy: Issues and Impacts

67.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a

merger. The U.S. Justice Department concludes the merger will boost the index to 1,050.

The

antitrust authorities will most likely

C.

allow the merger if foreign entry to the industry is possible.

D.

allow the merger but watch the new firm carefully for future violations of the antitrust

laws.

68.

The view that the antitrust laws should be enforced relatively leniently because of the

tendency for monopoly power to erode over time is known as the

A.

structuralist view of antitrust.

69.

The view that the antitrust laws need to be strongly enforced to prevent illegal business

behaviors, monopolization of markets, and allocative inefficiency is known as the

A.

structuralist view of antitrust.

70.

Economists who adhere to the laissez-faire antitrust perspective

D.

contend that large, dominant firms should be broken into smaller competitive firms and

then government should stand back and let competition prevail.

71.

A firm is likely to be a natural monopoly

A.

when the demand for its product or service is inelastic.

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Blooms: Remember

D i f f i c u l t y : 01 Easy

Learning Objective: 21–03 Identify and explain the economic principles and difficulties

relating to the setting of prices rates charged by so-called natural monopolies.

Test Bank: I

Topic: Industrial Regulation

72.

Which of the following is characteristic of a regulated natural monopoly?

A.

extensive economies of scale

73.

Suppose the transportation industry has been regulated for many years. Government

now proposes to deregulate the industry, only to find that firms in the industry oppose this

action. This is consistent with the

A.

public interest theory of regulation.

74.

Using antitrust law to split up an unregulated natural monopoly into several competing

firms

A.

would reduce product price.

75.

A major criticism of industrial regulation is that

A.

it has been applied to virtually all major U.S. corporations in the post-Second World

War period.

76.

Critics of the regulation of natural monopolies contend that

A.

regulation increases the incentive of firms to lower costs.

21–32

written consent of McGraw-Hill Education.

Learning Objective: 21–03 Identify and explain the economic principles and difficulties

relating to the setting of prices rates charged by so-called natural monopolies.

Test Bank: I

Topic: Industrial Regulation

77.

A market in which the entire demand for a good or service can be satisfied at the least

cost by a single firm is a

D.

perfect market.

78.

The legal cartel theory of regulation argues that

A. regulation encourages firms to inflate their production costs.

79.

The public interest theory of industrial regulation contends that

A.

while industrial regulation is sound in theory, bureaucrats allow monopolists to obtain

excessive profits.

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C.

the objective of regulation is to protect the public from the market power inherent in

natural monopolies.

D. firms in some industries want to be regulated.

80.

Which one of the following is concerned with industrial regulation, as distinct from

social regulation?

A.

Occupational Safety and Health Administration

81.

All of the following are regulatory commissions dealing with industrial regulation (as

distinct from social regulation) except the

D.

50 state public utility commissions.

21–34

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Test Bank: I

Topic: Industrial Regulation

82.

Where there is natural monopoly, government is most likely to implement

A.

social regulation.

83.

The main purpose of industrial regulation is to

A. lower price to marginal cost.

84.

Critics of industrial regulation say that such regulation

D.

suffers from the free-rider problem.

21–35

written consent of McGraw-Hill Education.

Blooms: Remember

D i f f i c u l t y : 01 Easy

Learning Objective: 21–03 Identify and explain the economic principles and difficulties

relating to the setting of prices rates charged by so-called natural monopolies.

Test Bank: I

Topic: Industrial Regulation

85.

Critics of industrial regulation say that such regulation

A. benefits small firms at the expense of large firms.

86.

Overall, economists believe that deregulation of industries formerly subjected to

industrial regulation

A.

has been a clear failure.

87.

The largest efficiency gains from deregulation have occurred in the

A.

natural gas and cable television industries.

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B.

cable television and railroad industries.

C.

communications and stock-brokering industries.

D.

airlines, trucking, and railroad industries.

88.

Social, as distinct from industrial, regulation is the major focus of the

A.

Federal Trade Commission.

89.

Defenders of social regulation point out that

A. social regulation is a better alternative than unregulated natural monopoly.

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Topic: Social Regulation

90.

Social regulation differs from industrial regulation in that

D.

industrial regulation regulates products, whereas social regulation regulates prices.

91.

Critics of social regulation argue that it

A.

causes deflation.

92.

Which one of the following is concerned with social regulation?

D.

Federal Energy Regulatory Commission

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A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 21–04 Discuss the nature of social regulation, its benefits and costs,

and its optimal level.

Test Bank: I

Topic: Social Regulation

93.

The optimal amount of social regulation occurs where the marginal benefit of such

regulation

D.

is at its maximum.

94.

Congressional representatives have called for extensive ergonomics regulations to

reduce strains and injuries from repetitive activities by workers. Such regulation, if passed,

would be a good example of

A.

industrial regulation.

95.

(Consider This) The Consider This box “Of Catfish and Art (and Other Things in

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Common)” lists examples of recent antitrust cases involving

A.

monopolization.

96.

(Consider This) According to the Consider This box on catfish and art, which of the

following firms were convicted for horizontal price-fixing?

A.

Dell and Gateway (personal computer makers)

97.

(Consider This) According to the Consider This box on catfish and art, which of the

following airlines in 2007 agreed to pay $300 million in fines for fixing fuel surcharges on

passenger tickets and cargo?

D.

Virgin Atlantic and Aeroflot

98.

(Last Word) In 1994, the U.S. Department of Justice stopped which of the following

practices?

A. airlines explicitly agreeing to divide the market so that each carrier could have a local

monopoly

99.

(Last Word) In 2000, Microsoft was fined $2.7 billion for

D.

deliberately pricing Windows 95 and 98 below marginal cost to monopolize the market

for operating systems for personal computers.