True / False
1. The goal of all regulation is the creation of perfectly competitive markets.
a.
True
b.
False
False
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
2. High prices redistribute wealth from consumers to firms.
a.
True
b.
False
True
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
3. Firms with monopoly power tend to be more efficient than competitive firms.
a.
True
b.
False
False
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
4. All large firms have monopoly power.
a.
True
b.
False
False
DISC: The role of government
United States – BPROG: Analytic
5. Antitrust laws prohibit undesirable business practices by firms holding monopoly power.
a.
True
b.
False
True
Easy
6. The antitrust laws are enforced by government agencies such as the Federal Trade Commission and the Department of
Justice.
a.
True
b.
False
True
Easy
7. Trusts were groups of firms that acted together to raise prices above competitive levels.
a.
True
b.
False
True
Easy
8. Market power allows firms to raise prices significantly above the competitive level.
a.
True
b.
False
True
Moderate
9. In highly contestable markets, increases in concentration will enhance market power.
a.
True
b.
False
False
Difficult
10. The concentration ratio of industry is a measure relating to the proportion of the industry’s total output that is produced
by a small number of firms.
a.
True
b.
False
True
Easy
11. Increasing concentration always means an industry has become effectively monopolized.
a.
True
b.
False
False
Easy
12. Concentration ratios have not been studied much in the last century.
a.
True
b.
False
False
Easy
13. Over the course of the twentieth century there has been no pronounced tendency for concentration in the United States
to increase.
a.
True
b.
False
True
Moderate
14. In a market with only one firm (a pure monopoly), the Herfindahl-Hirschman Index (HHI) would equal 10,000.
a.
True
b.
False
True
Moderate
15. It is easy to discern the difference between vigorous competition and the exercise of monopoly power.
a.
True
b.
False
False
Easy
16. Selling at a price that is only slightly above the firm’s cost of production is called predatory pricing.
a.
True
b.
False
False
Easy
17. Microsoft has been accused of violating an antitrust law pertaining to bundling.
a.
True
b.
False
True
Easy
18. A merger occurs when two previously independent firms are combined under a single owner.
a.
True
b.
False
True
Easy
19. The government used the Herfindahl-Hirschman index to determine if a proposed merger will lead to excessive
concentration.
a.
True
b.
False
True
Moderate
20. A concentration ratio provides a better assessment of market power than the Herfindahl-Hirschman index does.
a.
True
b.
False
False
Moderate
21. By definition, an industry with high concentration also is highly competitive.
a.
True
b.
False
False
Easy
22. If an industry consists of five firms each with a 20% market share, then the Herfindahl-Hirschman index would equal
1,600.
a.
True
b.
False
False
Moderate
23. Economists believe mergers can sometimes achieve greater efficiency than two companies that do not merge.
a.
True
b.
False
True
Moderate
24. The antitrust laws are sometimes used by companies to reduce competition in their markets rather than enhance it.
a.
True
b.
False
True
Easy
25. Regulation began in the United States in the 1950s.
a.
True
b.
False
False
Easy
26. The Federal Trade Commission was established in the 1930s under President Franklin D. Roosevelt.
a.
True
b.
False
False
Easy
27. Regulation of industry is usually carried out by special government agencies that administer and interpret the law.
a.
True
b.
False
True
Moderate
28. The main instrument of control of public monopolies is the regulatory agency.
a.
True
b.
False
True
Easy
29. Powers of many regulatory agencies are designed to protect public health and safety.
a.
True
b.
False
True
Easy
30. Many industries are regulated in the United States, from railroads and electric utilities to cable TV.
a.
True
b.
False
True
Moderate
31. Many regulated industries are not pure monopolies.
a.
True
b.
False
True
Easy
32. Economies of scale and scope encourage free competition.
a.
True
b.
False
False
Easy
33. Economies of scope are present when a bank also sells insurance and provides brokerage services for stocks and
bonds.
a.
True
b.
False
True
Moderate
34. The concept of economies of scope describes the savings acquired from simultaneous production of different products.
a.
True
b.
False
True
Moderate
35. Economies of scale tend to create natural monopolies.
a.
True
b.
False
True
Easy
36. Universal service may require making a service available in small communities where the limited scale of operations
may make costs extremely high.
a.
True
b.
False
True
Moderate
37. Universal service means that one company provides service to all consumers, everywhere.
a.
True
b.
False
False
Easy
38. The “universal service” argument often requires that some products be sold at a loss while other products be sold at
profits higher than normal.
a.
True
b.
False
True
Moderate
39. Cross-subsidization implies that a loss from one product’s sales will be made up by the profit from another product’s
sales.
a.
True
b.
False
True
Moderate
40. Prices that maximize the public interest will always allow reasonable profits for firms.
a.
True
b.
False
False
Moderate
41. Economists ordinarily favor setting price equal to marginal cost when this option is feasible.
a.
True
b.
False
True
Moderate
42. A policy of marginal-cost pricing will ensure that many regulated industries will lose money.
a.
True
b.
False
True
Moderate
43. In regulated industries, the optimal regulation is to set price such that MC=P.
a.
True
b.
False
False
Moderate
44. Regulating firms so that they always receive a guaranteed profit rate will lead to greatest efficiency.
a.
True
b.
False
False
Moderate
45. Cost-plus pricing and guaranteed profit regulation give the same results.
a.
True
b.
False
False
Easy
46. Unrestrained monopolies are criticized because they restrict output and reduce innovation.
a.
True
b.
False
True
Moderate
47. Monopolies may be the only firms large enough to commercially produce a significantly innovative new product.
a.
True
b.
False
True
Moderate
48. One economically valid approach to regulation is simply to break all large firms into many smaller ones.
a.
True
b.
False
False
Moderate
49. The most important advantages of bigness will be found in industries that show increasing returns to scale.
a.
True
b.
False
True
Difficult
50. If a firm is a natural monopoly, society will benefit if it is broken into several small companies.
a.
True
b.
False
False
Easy
51. Beginning in the mid-1970s, Congress deregulated several industries including airlines and trucking.
a.
True
b.
False
True
Moderate
Deregulation
52. Serious concern for deregulation began to appear in Congress in the 1970s.
a.
True
b.
False
True
Easy
Deregulation
53. Airline deregulation led to the demise of many smaller airlines but large carriers were not materially affected.
a.
True
b.
False
False
Easy
Deregulation
54. Deregulation has led to higher prices.
a.
True
b.
False
False
Moderate
Deregulation
55. In most industries, deregulation has led to lower prices.
a.
True
b.
False
True
Moderate
Deregulation
56. Service to consumers of deregulated products has generally not diminished.
a.
True
b.
False
True
Moderate
Deregulation
57. Deregulation of the airline and trucking industries was followed by the creation of many new firms.
a.
True
b.
False
True
Easy
Deregulation
58. Deregulation has dramatically decreased airline safety.
a.
True
b.
False
False
Moderate
Deregulation
59. Regulatory agencies always protect consumers by forcing regulated firms to sell at the lowest possible price.
a.
True
b.
False
False
Moderate
60. Firms violating antitrust laws are likely to be sued by the federal government, but not by rival firms.
a.
True
b.
False
False
Easy
61. The Clayton Act prohibits “all contracts, combinations and conspiracies in restraint of trade.”
a.
True
b.
False
False
Moderate
DISC: The role of government
United States – BPROG: Analytic
Antitrust Laws and Policies
62. Major firms charged with predatory pricing defend by saying that their prices are low because of superior efficiency.
a.
True
b.
False
True
Moderate
DISC: The role of government
United States – BPROG: Analytic
Anticompetitive Practices and Antitrust
Multiple Choice
63. ____ occur when an X percent increase in input use raises output by more than X percent, so that the more the firm
produces, the lower its per-unit costs become.
a.
Economies of scope
b.
Scale economies
c.
Product differentiation
d.
Perfect competition
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
64. What is defined as the ability of a firm to earn high profits by raising and keeping the prices of its products
substantially above the levels at which those products would be priced in competitive markets?
a.
Economies of scope
b.
Tacit collusion
c.
Monopoly power
d.
Perfect competition
c
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
65. What is the primary threat of monopoly and oligopoly to the public interest?
a.
Cartels
b.
Predatory pricing
c.
Price wars
d.
Monopoly power
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
66. Which of the following is a valid effect of monopoly power?
a.
Desirable effects on the distribution of wealth.
b.
Efficient resource allocation.
c.
Fostering of innovation.
d.
Obstacle to efficiency.
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
The Public Interest Issue: Monopoly Power Versus Mere Size
67. Policies that preclude the deliberate creation of monopoly and undesirable practices are called
a.
antitrust policies.
b.
anti-monopoly policies.
c.
anti-competitive policies.
d.
socialism.
a
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
68. The aim of antitrust policy is to
a.
provide adequate incentives for inventors and entrepreneurs.
b.
prevent firms from acquiring or exercising undue market power.
c.
prevent firms from becoming very large.
d.
regulate the prices charged by oligopolies.
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
69. Modern antitrust policy began in response to
a.
abuses of market power in the oil industry.
b.
the inability of railroads to compete effectively with the new trucking industry.
c.
the charge that the rights of big business were not adequately protected.
d.
attempts by business leaders to pack Congress with corrupt legislators.
a
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
70. In the United States, price-fixing arrangements among firms are
a.
legal.
b.
illegal only if a court decides that the prices fixed are unreasonable.
c.
illegal only if a court has concrete evidence that the firms explicitly colluded.
d.
illegal.
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
71. Which of the following acts prohibits directors of one company from sitting on the board of a competitor?
a.
Sherman Act
b.
Federal Trade Commission Act
c.
Robinson-Patman Act
d.
Clayton Act
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
72. Under a tying contract,
a.
the price a buyer must pay for a good is tied to the size of his purchase.
b.
a customer agrees as a condition of buying a good to purchase one or more additional goods from the same
seller.
c.
a firm agrees to allow members of its competitors’ boards of directors to sit on its board.
d.
a firm agrees to pay an intermediary for having arranged a business deal for the firm.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
73. Price discrimination by a firm is
a.
illegal under all circumstances.
b.
legal if the firm can show that the difference in the prices charged customers is justified by a difference in the
costs of serving them.
c.
legal if the firm can show that the demand for its good is relatively elastic.
d.
legal under all circumstances.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Antitrust Laws and Policies
74. The four-firm concentration ratio for an industry is
a.
the number of firms in the industry, divided by four.
b.
the share of industry output sold by the four largest firms in the industry.
c.
the percentage of total industry profits claimed by the four largest firms.
d.
the share of industry output sold by the fourth largest firm in the industry.