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Chapter 13 Test Bank Key
1. All of the following are necessary conditions for pure laissez faire except
2. When firms have the ability to restrict output, raise prices, stifle competition, and inhibit innovation, the market
failure involved is
3. Market failure can result from all of the following except
4. When the market does not lead to an optimal allocation of resources, there must be
5. Market failure
A. Occurs whenever the government intervenes in the market mechanism.
6. The major aim of government regulation is to
7. Antitrust enforcement focuses on market structure, while government regulation deals with all of the
following except
8. Which of the following is a form of government intervention?
A. Natural monopoly.
9. The best way to address a natural monopoly without dismantling the economies of scale is
10. Which of the following is a form of government intervention that is designed to correct market failures?
A. Antitrust laws.
11. Which of the following can the government use to alter both firm behavior and industry structure?
A. Deregulation.
12. The goal of antitrust laws is to
A. Control the structure of an industry only.
13. Which of the following is used as an antitrust tool that focuses on the structure of industry?
14. A natural monopoly is a desirable market structure because
15. The long-run average total cost curve of a natural monopolist
16. A natural monopoly occurs because of
17. All of the following are examples of natural monopolies except
18. An industry in which one firm can achieve economies of scale over the entire range of market supply is a
A. Contestable market.
19. If a natural monopoly was broken into several smaller competing firms,
A. Consumers would lose because of less competition.
20. If a natural monopoly was forced to break up into several small competitive firms, the
A. Cost of production should fall as the smaller firms become more efficient.
21. A natural monopoly
22. An unregulated natural monopoly can lead to
A. Higher prices for consumers.
23. For a natural monopoly, marginal cost
A. Intersects average total cost at zero profit.
24. The long-run average total cost curve of a natural monopolist
25. Economies of scale refer to the
26. To maximize profit, a natural monopolist produces the level of output at which
A. Price equals marginal cost.
27. An unregulated natural monopoly can lead to all of the following except
A. A suboptimal mix of output.
entering the market. This will lead to less output than society desires and higher prices for consumers.
28. Marginal cost pricing means that a firm charges
A. A price that is marginally lower than the average total cost of production.
29. Market failure occurs in natural monopolies because
30. Natural monopolies fail to minimize
31. An unregulated natural monopoly is most likely to
32. When a firm experiences positive economic profits over the long run,
33. If a natural monopoly is forced to use marginal cost pricing, which of the following is not true?
34. Which of the following is not a regulatory option when the government is trying to prevent market failure in the
case of a natural monopoly?
35. If the government forces a natural monopoly to produce the output level at which P = MC, the firm will
36. What is meant by price efficiency?
37. If a natural monopoly is forced to set a price consistent with price efficiency, it will
A. Set price above marginal cost.
38. If the government regulated a natural monopolist to achieve price efficiency without subsidies or price
discrimination, the monopolist would
A. Lose money and go out of business.
39. For a natural monopoly, price efficiency means
A. Price is set above marginal cost.
40. If the government wants a natural monopolist to achieve allocative efficiency, the government should
41. A major drawback of providing subsidies to private companies that are natural monopolies is that
42. Production efficiency under a natural monopoly is achieved
43. In the absence of a subsidy, production efficiency by a natural monopolist will
Profit regulation can lead to bloated costs and dynamic inefficiency. If a firm is permitted a specific profit rate
(or rate of return), it has no incentive to limit costs and therefore is more likely to advertise.
45. If profit regulation is used to control a natural monopolist, the monopolist is likely
to A. Attempt to reduce the costs of production.
46. Profit regulation of a natural monopoly is achieved when
47. Profit regulation occurs when regulation requires the natural monopolist to set
48. A natural monopoly can purposely increase its cost of production by
49. For a natural monopolist, if costs start to climb once it is subject to government regulation, then it is most
likely facing
50. Suppose the quality of service provided by a newly regulated firm begins to deteriorate soon after regulation is
enforced. Which of the following types of regulation is most likely being used?
51. Output regulation forces the natural monopolist to produce at an output
52. Output regulation is likely to result in
53. Compared with the profit-maximizing choice of a natural monopolist, output regulation will result in a
54. Output regulation for a natural monopolist
55. Regulations that offer imperfect answers
A. Are options that should never be implemented.
56. If government failure did not exist,
57. Government failure occurs when
58. In the real world, the choice is between
59. When market outcomes improve after government regulation is enforced,
60. Hiring over 260,000 U.S. federal workers to oversee and operate regulatory agencies involves
61. The over 260,000 people employed in regulatory agencies of the federal government represent
A. A compliance cost.
62. When the FCC hires a new lawyer to help enforce government regulation, her salary is an example of
63. If Synergy Energy Corp. hires attorneys to keep it informed about new regulations, their salaries
represent A. Administrative costs.
64. Which regulatory cost is borne by the firms that are regulated?
A. Efficiency costs.
65. The Braden brothers considered starting a new skydiving company. Once they read the government regulations
they would have to comply with, they changed their minds. This is an example of
66. When regulation results in an inferior mix of output, there are
67. When the regulatory process itself becomes a drag on economic growth, society experiences
68. Which of the following is an example of government failure?
A. Too much regulation resulting in wasted resources.
69. Regulation is appropriate if A.
70. In cost-benefit analysis, regulatory intervention can be justified if the
71. When there is market failure
73. Which of the following markets has not been subject to substantial deregulation?
74. The first major regulatory target in the United States
75. Deregulation of the railroad industry led to
A. Lower profits.
76. Prior to the deregulation of the railroad industry, there was little incentive to invest in new technology or
equipment. This is an example of
77.
Before the deregulation in telecommunications, AT&T charged higher rates on long-distance service in order to
make local service rates lower. Such a practice is an example of
78. Before deregulation of the telephone industry,
A. Telephone service prices were lower than after deregulation.
79.
The collapse of AT&T's natural monopoly in long-distance telephone service was caused by
80. Which of the following industries was substantially deregulated over the last several decades?
A. Autos.
81. Deregulation of the airline industry has
A. Resulted in more complaints by passengers.
82. In which of the following markets did deregulation contribute to increased industry concentration?
83. The use of high prices and profits on one product to subsidize low prices on another product is
84. Cross-subsidization occurs when
85. When the CAB allowed airlines to charge high prices on longer, more efficient routes as long as they
maintained service on shorter, unprofitable routes, it was allowing
A. Profit sharing.
86. If entry barriers into a monopolized market are kept low,
87. Which of the following would be most likely to give the American public more air travel at a lower cost?
88. Deregulation of the cable TV market by the Telecommunications Turns Act of 1996 resulted in
A. Lower prices and better service.
89. What development turned the cable TV market into a contestable one?
90. The industry that is the most recent target of deregulation is the
