Oligopoly 4393
9. Which government entity is charged with investigating and enforcing antitrust laws?
a. the U.S. Justice Department
b. the U.S. Commerce Department
c. the U.S. Treasury Department
d. the Bureau of Alcohol, Tobacco, and Firearms
10. Who wrote, “People of the same trade seldom meet together, but the conversation ends in a
conspiracy against the public, or in some diversion to raise prices.“?
a. Thomas Jefferson
b. Adam Smith
c. Bill Gates
d. Robert Axelrod
4394 Oligopoly
11. The Sherman Antitrust Act
a. was passed to encourage judicial leniency in the review of cooperative agreements.
b. was concerned with self-interest dominated Nash equilibriums in prisoners‘ dilemma games.
c. enhanced the ability to enforce cartel agreements.
d. restricted the ability of competitors to engage in cooperative agreements.
12. The Sherman Act made cooperative agreements
a. unenforceable outside of established judicial review processes.
b. enforceable with proper judicial review.
c. a criminal conspiracy.
d. a crime, but did not give direction on possible penalties.
13. The Sherman Antitrust Act was passed in
a. 1836.
b. 1890.
c. 1914.
d. 1946.
Oligopoly 4395
14. The Sherman Antitrust Act prohibits price-fixing in the sense that
a. competing executives cannot even talk about fixing prices.
b. competing executives can talk about fixing prices, but they cannot take action to fix prices.
c. a price-fixing agreement can lead to prosecution provided the government can show that the
public was not well-served by the agreement.
d. None of the above is correct. The Sherman Act did not address the matter of price-fixing.
15. The Sherman Antitrust Act prohibits executives of competing companies from
a. fixing prices, but it does not prohibit them from talking about fixing prices.
b. even talking about fixing prices.
c. sharing with one another their knowledge of game theory.
d. failing to stand by agreements that they had made with one another.
4396 Oligopoly
16. The Sherman Antitrust Act
a. overturned centuries-old views of English and American judges on agreements among
competitors.
b. had the effect of discouraging private lawsuits against conspiring oligopolists.
c. strengthened the Clayton Act.
d. elevated agreements among conspiring oligopolists from an unenforceable contract to a
criminal conspiracy.
17. Which of the following prohibits executives of competing firms from even talking about fixing
prices?
a. Sherman Act
b. Clayton Act
c. Federal Trade Commission
d. U.S. Justice Department
Oligopoly 4397
18. Two CEOs from different firms in the same market collude to fix the price in the market. This
action violates the
a. Clayton Act of 1914.
b. Sherman Antitrust Act of 1890.
c. Crandall-Putnam ruling of 1983.
d. Jackson-Microsoft ruling of 2000.
19. The Clayton Act
a. preceded the Sherman Act.
b. replaced the Sherman Act.
c. strengthened the Sherman Act.
d. was specifically designed to reduce the ability of cartels to organize.
4398 Oligopoly
20. According to the Clayton Act,
a. lawyers are given an incentive to reduce the number of cases involving cooperative
arrangements.
b. individuals can sue to recover damages from illegal cooperative agreements.
c. the government was able to incarcerate the CEO of a firm for illegal pricing arrangements.
d. private lawsuits are discouraged.
21. If a person can prove that she was damaged by an illegal arrangement to restrain trade, that
person can sue and recover
a. the damages she sustained, as provided for in the Sherman Act.
b. the damages she sustained, as provided for in the Clayton Act.
c. three times the damages she sustained, as provided for in the Sherman Act.
d. three times the damages she sustained, as provided for in the Clayton Act.
Oligopoly 4399
22. Which of the following statements is false?
a. The Clayton Act allows triple damages in civil lawsuits in order to encourage lawsuits against
conspiring oligopolists.
b. Many economists defend the practice of resale price maintenance on the grounds that it may
help solve a free-rider problem.
c. Most economists agree that predatory pricing is a profitable business strategy that usually
preserves market power.
d. The U.S. Supreme Court’s view that the practice of tying usually allows a firm to extend its
market power is not generally supported by economic theory.
23. When individuals are damaged by an illegal arrangement to restrain trade, which law allows them
to pursue civil action and recover up to three times the damages sustained?
a. Trade Damage Act
b. Clayton Act
c. Sherman Act
d. No law allows individuals to pursue civil action and recover up to three times the damages
sustained.
4400 Oligopoly
24. The Clayton Act of 1914 allows those harmed by illegal arrangements to restrain trade to
a. sue for up to two times the damages they incurred.
b. sue for up to three times the damages they incurred.
c. sue for up to four times the damages they incurred.
d. sue for damages, but only for the actual amount of damages they incurred.
25. Antitrust laws in general are used to
a. prevent oligopolists from acting in ways that make markets less competitive.
b. encourage oligopolists to pursue cooperative-interest at the expense of self-interest.
c. encourage frivolous lawsuits among competitive firms.
d. encourage all firms to cut production levels and cut prices.
Oligopoly 4401
26. The practice of selling a product to retailers and requiring the retailers to charge a specific price
for the product is called
a. fixed retail pricing.
b. resale price maintenance.
c. cost plus pricing.
d. unfair trade.
27. Economists claim that a resale price maintenance agreement is not anti-competitive because
a. suppliers are never able to exercise noncompetitive market power.
b. if a supplier has market power, it will be likely to exert that power through wholesale price
rather than retail price.
c. retail markets are inherently noncompetitive.
d. retail cartel agreements cannot increase retail profits.
4402 Oligopoly
28. Assume that Bart’s Batteries has entered into a resale price maintenance agreement with Radio
Shanty but not with Prime Purchase. In this case,
a. the wholesale price of Bart’s Batteries will be different for Radio Shanty than it is for Prime
Purchase.
b. Bart‘s Batteries will never increase profits by having a resale price maintenance agreement
with all retail outlets that sell its products.
c. Prime Purchase might benefit from customers who go to Radio Shanty for information about
different batteries.
d. Radio Shanty will sell Bart‘s Batteries at a lower price than Prime Purchase.
29. Assume that Samorola has entered into an enforceable resale price maintenance agreement with
Trint and U- Mobile. Which of the following will always be true?
a. The wholesale price of Samorolas will be different for Trint than it is for U-Mobile.
b. U-Mobile will benefit from customers who go to Trint for information about different mobile
phones.
c. Trint will sell Samorolas at a lower price than U–Mobile.
d. U-Mobile and Trint will always sell Samorolas for exactly the same price.
Oligopoly 4403
30. A firm that practices resale price maintenance
a. has incentive to reduce competition between its retailers. Resale price maintenance can lead to
more service.
b. has incentive to reduce competition between its retailers. Resale price maintenance cannot lead
to more service.
c. has no incentive to reduce competition between its retailers. Resale price maintenance can lead
to more service.
d. has no incentive to reduce competition between its retailers. Resale price maintenance cannot
lead to more service.
31. Resale price maintenance involves a firm
a. colluding with another firm to restrict output and raise prices.
b. selling two individual products together for a single price rather than selling each product
individually at separate prices.
c. temporarily cutting the price of its product to drive a competitor out of the market.
d. requiring that the firm reselling its product do so at a specified price.
4404 Oligopoly
32. The manufacturer of South Face sells jackets to retail stores for $120 each, and it requires the
retail stores to charge customers $150 per jacket. Any retailer that charges less than $150 would
violate its contract with South Face. What do economists call this business practice?
a. predatory pricing
b. resale price maintenance
c. tying
d. leverage
33. If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers
$42 for each pair of jeans, Levi Strauss & Co. would be practicing
a. resale price maintenance.
b. fixed retail pricing.
c. tying.
d. cost plus pricing.
Oligopoly 4405
34. Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to
charge customers $500 for the computers, then it is engaging in
a. resale price maintenance.
b. predatory pricing.
c. tying.
d. monopolistic competition.
35. Predatory pricing refers to
a. a firm selling certain products together rather than separately.
b. a monopoly firm reducing its price in an attempt to maintain its monopoly.
c. firms colluding to set prices.
d. All of the above are examples of predatory pricing.
4406 Oligopoly
36. Predatory pricing occurs when a firm
a. exercises its oligopoly power by raising its price through the formation of a cartel.
b. exercises its monopoly power by raising its price.
c. cuts its prices in order make itself more competitive.
d. cuts its prices temporarily in order to drive out any competition.
37. Although the practice of predatory pricing is a common claim in antitrust suits, some economists
are skeptical of this argument because they believe
a. the evidence of its practice is nearly impossible to collect.
b. predatory pricing is not a profitable business strategy.
c. even though predatory pricing is a profitable business strategy, it is on balance beneficial to
society.
d. predatory pricing actually attracts new firms to the industry.
Oligopoly 4407
38. Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as
a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as
a. resale price maintenance.
b. predatory tying.
c. tying.
d. predatory pricing.
39. Which of the following questions about predatory pricing remains unresolved?
a. Are the courts capable of determining which price cuts are competitive and which are
predatory?
b. Are the courts capable of determining which price cuts are good for consumers?
c. Is predatory pricing ever a profitable business strategy?
d. All of the above questions about predatory pricing are unresolved.
4408 Oligopoly
40. Predatory pricing occurs when
a. firms collude to set prices. Economists are certain this practice is profitable.
b. firms collude to set prices. Economists are skeptical that this practice is profitable.
c. A monopolist decreases its prices to maintain its monopoly. Economists are certain this practice
is profitable.
d. A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this
practice is profitable.
41. Predatory pricing involves a firm
a. colluding with another firm to restrict output and raise prices.
b. selling two individual products together for a single price rather than selling each product
individually at separate prices.
c. temporarily cutting the price of its product to drive a competitor out of the market.
d. requiring that the firm reselling its product do so at a specified price.
Oligopoly 4409
42. The practice of requiring someone to buy two or more items together, rather than separately, is
called
a. resale maintenance.
b. product fixing.
c. tying.
d. free-riding.
43. The practice of tying is illegal on the grounds that
a. it allows firms to expand their market power.
b. it allows firms to form collusive arrangements.
c. it prevents firms from forming collusive agreements.
d. the Sherman Act explicitly prohibited such agreements.
4410 Oligopoly
44. Tying involves a firm
a. colluding with another firm to restrict output and raise prices.
b. selling two individual products together for a single price rather than selling each product
individually at separate prices.
c. temporarily cutting the price of its product to drive a competitor out of the market.
d. requiring that the firm reselling its product do so at a specified price.
45. In the U.S. government’s 1998 suit against the Microsoft Corporation, a central issue was whether
Microsoft should be allowed to integrate its Internet browser into its Windows operating system.
Microsoft responded that
a. this integration of products is an example of tying, and the U.S. Supreme Court has consistently
ruled that tying is a perfectly acceptable and legal business practice.
b. this integration of products is an example of resale price maintenance, and the U.S. Supreme
Court has consistently ruled that fair trade is a perfectly acceptable and legal business practice.
c. putting new features into old products is a natural part of technological practice.
d. it would discontinue this integration of products, provided a speedy resolution of the
government’s case could
be reached.
Oligopoly 4411
46. A central issue in the Microsoft antitrust lawsuit involved Microsoft’s integration of its Internet
browser into its Windows operating system, to be sold as one unit. This practice is known as
a. tying.
b. predation.
c. wholesale maintenance.
d. retail maintenance.
47. The argument that consumers will not be willing to pay any more for two items sold as one than
they would for the two items sold separately is used to justify the legality of which of the
following?
a. resale price maintenance
b. tying
c. predatory pricing
d. free-riding
4412 Oligopoly
48. The practice of tying is used to
a. enhance the enforcement of antitrust laws.
b. encourage the enforcement of collusive agreements.
c. control the retail price of a collection of related products.
d. package products to sell at a combined price closer to a buyer’s total willingness to pay.
Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant’s only two
customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing
to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak,
but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at
zero marginal cost.
49. Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit–maximizing
price to charge for a steak?
a. $20
b. $16
c. $12
d. $8