39) Firms in oligopoly can achieve an economic profit
A) always in the long run.
B) if they cooperate.
C) only if the demand for their products is inelastic.
D) only if the demand for their products is elastic.
E) if they reach the non-cooperative equilibrium.
40) When duopoly games are repeated and a “tit for tat” strategy is used,
A) the competitive outcome is more likely to be reached than when the game is played once.
B) the monopoly outcome is more likely to be reached than when the game is played once.
C) both firms begin to incur economic losses.
D) one firm goes out of business.
E) because the game is repeated it is impossible to predict whether the competitive or the
monopoly outcome is more likely.
41) Oligopoly is
A) always efficient.
B) efficient only if the firms cooperate.
C) efficient only if the firms play non-repeated games.
D) generally not efficient.
E) efficient only if the firms innovate.
17.4 Antitrust Law
1) The focus of antitrust legislation is to
A) encourage cartels to form because they are easier to regulate.
B) maintain competition.
C) force society to act in the best interest of producers.
D) limit the power of regulatory bodies.
E) ensure that producers earn enough profit to stay in business so that consumers are not harmed
by too many businesses closing.
2) Which of the following are U.S. antitrust laws?
i. The Rockefeller Act
ii. The Sherman Act
iii. The Natural Monopoly Act
A) i and ii
B) ii and iii
C) ii only
D) i, ii, and iii
E) i only
3) The first antitrust law in the United States was the
A) Sherman Act, passed in 1960.
B) Clayton Act, passed in 1914.
C) Clayton Act, passed in 1830.
D) Sherman Act, passed in 1890.
E) Sherman Act, passed in 1933.
4) Section 1 of the Sherman Antitrust Act declares what to be illegal?
A) 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
B) mergers of a horizontal nature
C) any attempt to monopolize an industry
D) sharing of technology among competing firms or mergers where the effect is to lessen
competition
E) exiting an industry if the remaining firm or firms have a market share that is too large.
5) According to Section 2 of the Sherman Act, which of the following is a felony?
A) mergers of a vertical nature
B) horizontal mergers
C) attempts to monopolize an industry
D) price increases among competing firms that occur simultaneously
E) using the HHI to justify a merger
6) Which antitrust law has two main provisions, one against conspiring with others to restrict
competition and the other making it a felony to monopolize or attempt to monopolize?
A) Sherman Act
B) Clayton Act
C) Robinson-Patman Act
D) Celter-Kefauver Act
E) Bade-Parkin Act
7) As a result of a wave of mergers in the early part of the twentieth century, which act was
passed?
A) the Anti-Merger Act of 1900
B) the Sherman Act of 1909
C) the Clayton Act of 1914
D) the Horizontal Merger Act of 1919
E) the Pro-Competition Act of 1912
8) In the United States, antitrust laws
A) do not allow one person to be a director of two competing firms if being a member
“substantially lessens competition”.
B) break up a company if it is too large because “size itself is an offense.”
C) do not always prosecute firms if they have fixed their prices.
D) regard excess competition as a felony under Section 3 of the Sherman Act.
E) place a maximum limit of 125 firms that are allowed to compete in any market.
9) Which of the following does antitrust law prohibit if it substantially lessens competition or
creates a monopoly?
i. acquiring a competitor’s shares or assets
ii. territorial confinement
iii. becoming a director of a competing firm
A) i only
B) iii only
C) i and iii
D) i and ii
E) i, ii, and iii
10) Under the Clayton Act and its amendments, if it creates monopoly, which of the following
activities is illegal?
A) exit of a firm from a market with 4 or fewer surviving firms
B) price hikes among competing firms
C) price discrimination
D) patents that result in price hikes
E) entry of a firm into a new market
11) Under the Clayton Act and its amendments, if it creates monopoly, which of the following
activities is illegal?
i. contracts that require other goods to be bought from the same firm
ii. contracts that prevent a buyer from reselling a product outside a specified area
iii. becoming a director of a competing firm
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
12) Tying arrangements
A) require retailers to charge a specific price determined by the manufacturer.
B) require a buyer to purchase one product in order to buy another, different product.
C) are illegal under the Sherman Act.
D) always allow a firm to increase its market power.
E) are always illegal under the Clayton Act.
13) Which of the following is an example of a tying arrangement?
A) preventing a buyer from reselling a product outside a specific area
B) selling one product only if another product is purchased
C) forcing the purchase of all necessities from a single firm
D) prohibiting a seller from selling a competing item
E) selling different units of a good to the same buyer at different prices.
14) Tying arrangements
A) work only in perfectly competitive markets.
B) are illegal under the Sherman Act.
C) are illegal under the Clayton Act if they create monopoly.
D) are illegal under the Clayton Act and the Sherman Act only if they used along with predatory
pricing.
E) are always illegal under the Clayton Act.
15) If a firm, Best Computer Buys, requires its customers to buy software from it whenever the
customers purchase a computer, the company’s policy is called
A) an exclusive deal.
B) a territorial confinement.
C) a tying arrangement.
D) pricing discrimination.
E) predatory pricing.
16) In the 1970s, when a gasoline price ceiling was imposed that was below the equilibrium
price of gasoline, some gas stations required that buyers of gas also purchase other products sold
at the station. This policy is an example of which of the following?
A) price discrimination
B) tying arrangements
C) exclusive dealing
D) requirements contract
E) resale price maintenance
17) Which of the following is an example of exclusive dealing?
A) preventing a buyer from reselling a product outside a specific area
B) forcing a buyer to buy other goods from a supplier
C) forcing the purchase of all necessities from a single firm
D) prohibiting a seller from selling a competing item
E) selling different units of a good to the same buyer at different prices.
18) If Polka Cola prevents all of its retail outlets from selling any other competing soft drink, it is
engaged in
A) a tying agreement.
B) a requirement contracts.
C) an exclusive deal.
D) territorial confinement.
E) resale price maintenance.
19) Which of the following is an example of a territorial confinement?
A) preventing a buyer from reselling a product outside a specific area
B) selling one product only if another product is purchased
C) forcing the purchase of all necessities from a single firm
D) prohibiting a seller from selling a competing item
E) selling different units of a good at different prices to the same customer
20) Which of the following provisions require a firm to buy all of a particular item from a single
firm?
A) tying arrangement
B) requirements contracts
C) exclusive dealing
D) territorial confinement
E) quantity discrimination
21) Which of the following is always a violation of the antitrust law?
A) price fixing
B) price discrimination
C) resale price maintenance
D) predatory pricing
E) tying arrangements
22) Price fixing
A) always is a violation of the law.
B) is allowed only if otherwise a firm would go bankrupt.
C) is one of the business practices prohibited by the Clayton Act.
D) a violation of the law only when it is combined with predatory pricing.
E) is legal if the businesses have received prior clearance from the Justice Department.
23) Under what conditions would it be legal for two bakeries in Minneapolis to explicitly agree
to raise their prices by 5 percent?
A) if the price rise was not predatory
B) if the price rise did not measurably increase producer surplus
C) never
D) if the price rise did not harm consumers in the long run by reducing competition
E) if the price rise was necessary to keep one or both bakeries from closing.
24) Setting a price so low that competitors are driven out of a market and then boosting the price
is called
A) predatory pricing.
B) a tying arrangement.
C) resale price maintenance.
D) price fixing.
E) price discrimination.
25) When an oligopoly reduces its price with the intent of driving away its competitors, it is said
to be engaging in
A) pricing differential.
B) predatory pricing.
C) price fixing.
D) a price-tying agreement.
E) price discrimination.
26) Economists are skeptical that ________ occurs very often because firms engaging in it are
certain to suffer an economic loss for a period of time.
A) a tying arrangement
B) inefficient resale price maintenance
C) predatory pricing
D) efficient resale price maintenance
E) exclusive dealing
27) _______ is an agreement between a manufacturer and a distributor on the price at which a
product will be resold.
A) Resale price maintenance
B) Price discrimination
C) Price fixing
D) Predatory pricing
E) A tying arrangement
28) The manufacturer of perfume enters into an agreement with several distributors about the
price at which the distributors can resell the perfume. The manufacturers who do not agree to the
pricing suggestion are not able to sell the perfume. The agreement between manufacturers and
distributors is
A) resale price maintenance.
B) an interlocking dealership chain.
C) always inefficient.
D) a tying arrangement.
E) an example of an exclusive deal.
29) Resale price maintenance can be illegal
A) under the Clayton Act.
B) under the Sherman Act.
C) only if the distributors engage in predatory pricing.
D) if distributors tell the manufacturer the maximum price at which they will sell the product.
E) only when it is combined with territorial confinement.
30) Resale price maintenance is efficient if
A) it is used in conjunction with a tying arrangement.
B) the manufacturer does not engage in predatory pricing.
C) retailers charge the lowest price for the product.
D) it enables a manufacturer to induce an efficient standard of service from retailers.
E) it takes the place of an exclusive deal.
31) The government believes that which entry barrier has allowed Microsoft to gain monopoly
power?
A) ownership of the entire supply of a resource
B) patents
C) trademarks
D) economies of scale and network economies
E) territorial confinement
32) The U.S. courts found Microsoft
A) did not violate antitrust law.
B) violated the Sherman Act.
C) violated the Cellar-Kefauver Act.
D) engaged in predatory pricing.
E) violated the price discrimination clause of the Clayton Act.
33) If the Herfindahl-Hirschman Index in an industry is above 1,800, a merger that increases the
Herfindahl-Hirschman Index by over 50 points will
A) be allowed by the government.
B) be challenged by the government.
C) be encouraged by the government.
D) increase competition in that industry.
E) never be allowed to happen.
34) The Federal Trade Commission uses the ________ to help determine whether to challenge a
possible merger.
A) the Sherman Act
B) the Clayton Act
C) the Herfindahl-Hirschman Index
D) antitrust law of natural monopolies
E) the four-firm concentration ratio
35) If an industry has a Herfindahl-Hirschman index of 800, it is considered a
A) competitive market.
B) moderately concentrated market.
C) concentrated market.
D) monopoly.
E) small market.
36) If the Herfindahl-Hirschman Index (HHI) for a market is between 1,000 and 1,800, the
Federal Trade Commission will examine
A) all mergers.
B) no mergers.
C) mergers that raise the HHI by 100 or more points.
D) mergers that raise the HHI by 100 or fewer point.
E) mergers that lower the HHI by 100 or more points.
37) Suppose there are 6 firms in an industry with the following market shares. If the two smallest
firms want to merge, how will the Federal Trade Commission reply?
Firm 1: 30
Firm 2: 25
Firm 3: 25
Firm 4: 10
Firm 5: 7
Firm 6: 3
A) The firms will be allowed to merge and compete with the larger firms.
B) The firms will be challenged because the merger will raise the HHI by more than 50 points.
C) The firms will not be allowed to merge.
D) The firms will be challenged because the merger will raise the HHI by more than 100 points.
E) The firms will be challenged because the merger will raise the HHI by more than 250 points.
38) Federal Trade Commission guidelines state that it will examine mergers in markets for which
the Herfindahl-Hirschman Index is
A) a positive number.
B) below 1,000 points.
C) between 1,000 and 1,800 and the merger would reduce the index by 100 points.
D) between 1,000 and 1,800, and the merger would increase the index by 100 points.
E) more than 1,800.
39) Suppose that an industry has an HHI of 1,900. Two firms in the industry want to merge.
Under which conditions will the Federal Trade Commission challenge the merger?
A) The market is considered competitive, so the merger will not be challenged.
B) The merger will be challenged if it raises the HHI by 100 or more points.
C) The merger will be challenged if it raises the HHI by 50 or more points.
D) The merger will be challenged if it raises the HHI by 200 or more points.
E) The merger will be challenged if it raises the HHI by 500 or more points.
40) In order for the Federal Trade Commission to consider an industry concentrated, the industry
must have a Herfindahl-Hirschman Index of
A) less than 1,000.
B) between 1,000 and 1,400.
C) greater than 1,800.
D) less than zero.
E) between 1,400 and 1,800.
41) In the case of two recently proposed mergers, PepsiCo buying 7-Up and Coca-Cola buying
Dr. Pepper, the government blocked
A) the PepsiCo but not the Coca-Cola merger.
B) the Coca-Cola but not the PepsiCo merger.
C) both mergers.
D) neither merger.
E) the Coca-Cola merger and tried to block, but failed, the PepsiCo merger.
42) The first antitrust act was ________ passed in ________.
A) the Clayton Act; 1890
B) the Sherman Act; 1890
C) the Clinton Act; 1999
D) the Rockefeller Act; 1890
E) the Clayton Act; 1914
43) The Clayton Act
A) replaced the Sherman Act.
B) along with its amendments, outlawed several business practices if they substantially lessened
competition or created monopoly.
C) along with its amendments, prohibited all business practices that substantially lessen
competition or create monopoly.
D) was the first anti-trust law in the United States.
E) was repealed in 1985.
44) Which of the following is (are) prohibited if it substantially lessens competition or creates a
monopoly?
i. price discrimination
ii. tying arrangements
iii. exclusive dealing
A) i only
B) ii only
C) ii and iii
D) iii only
E) i, ii, and iii
45) If Polka Cola agrees to sell its cola to a retailer only if the retailer also buys a lemon-lime
drink, Polka Up, then Polka Cola is engaged in
A) a tying arrangement.
B) a requirement contracts.
C) an exclusive deal.
D) territorial confinement.
E) price discrimination.
46) Which of the following is always illegal?
A) possessing a very large market share
B) selling at a price below other producers because of efficiency
C) price fixing
D) attempting to merge with a competitor
E) price discrimination
47) Resale price maintenance
A) can lead to efficiency by preventing low-price shops from being free riders.
B) can lead to inefficiency by preventing low-price shops from being free riders.
C) is always legal.
D) is a clear example of predatory pricing.
E) is an example of a tying arrangement.
48) Predatory pricing occurs when a firm sets a ________ price to drive competitors out of
business with the intention of then setting a ________ price.
A) monopoly; high
B) monopoly; low
C) low; monopoly
D) low; low
E) high; monopoly
49) In the case against Microsoft, it was claimed that combining Internet Explorer and Windows
was
A) predatory pricing.
B) an illegal tying agreement.
C) creating one product that is convenient for the consumers.
D) illegal territorial confinement.
E) an inefficient resale maintenance agreement.
50) In a concentrated industry with a Herfindahl-Hirschman Index that exceeds 1,800, the
Federal Trade Commission will challenge any merger that increases the Herfindahl-Hirschman
index by a minimum of
A) 50 points.
B) 100 points.
C) 1,000 points.
D) 1,800 points.
E) 10,000 points.
17.5 Chapter Figures
The figure above shows the market for airplanes.
1) Suppose the airplane market is an oligopoly. If the firms act as a monopolist, the price will be
________ and if the firms act as competitors the price will be ________.
A) $13 million per plane; $1 million per plane
B) $1 million per plane; $13 million per plane
C) $13 million per plane; $13 million per plane
D) $1 million per plane; $1 million per plane
E) None of the above answers is correct.
2) Suppose the airplane market is an oligopoly. According to the figure above, if the firms act as
a monopolist, the quantity produced will be ________ planes per week and if the firms act as
competitors the quantity produced will be ________ planes per week.
A) 6; 12
B) 12; 6
C) 0; 6
D) 12; 0
E) None of the above answers is correct.
3) Suppose the airplane market is an oligopoly. According to the figure above, the price can
range as high as ________ and as low as ________.
A) $13 million per plane; $1 million per plane
B) $1 million per plane; $13 million per plane
C) $13 million per plane; $13 million per plane
D) $1 million per plane; $1 million per plane
E) None of the above answers is correct.
4) Suppose the airplane market is an oligopoly. According to the figure above, the quantity
produced can range as high as ________ planes per week and as low as ________ planes per
week.
A) 6; 12
B) 12; 6
C) 0; 6
D) 12; 0
E) None of the above answers is correct.