Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
75. The share of industry output sold by the top four steel producers in the country are 19%, 15%, 12%, and 9%
respectively. The four-firm concentration ratio for the steel industry is
a.
0.19.
b.
0.55
c.
0.138
d.
0.65
Difficult
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
BLOOMS: Application
76. An economist is told that concentration in the cement industry has increased. He can safely conclude that
a.
cement production must have fallen in the industry.
b.
competition in the cement industry has decreased.
c.
there are fewer cement producers than before.
d.
All of the above are correct.
c
Difficult
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
77. Which of the following events would increase the four-firm concentration ratio in a milk industry with six firms?
a.
The two largest milk producers merge.
b.
The largest milk producer buys an ice cream-making plant.
c.
The largest milk producer lures customers away from the second-largest producer.
d.
The four largest milk producers collusively fix prices.
a
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
78. If the four-firm concentration ratio in an industry increases, the industry
a.
b.
c.
d.
Difficult
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
79. The Herfindahl-Hirschman Index measures
a.
concentration in the industry.
b.
industrial average output.
c.
economies of scale.
d.
consumer confidence.
a
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
80. What does the Herfindahl-Hirschman Index value near zero imply about the market?
a.
Monopoly
b.
Perfect competition
c.
Monopolistic competition
d.
Oligopoly
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
81. What does the Herfindahl-Hirschman Index value near 10,000 imply about the market?
a.
Pure monopoly
b.
Perfect competition
c.
Monopolistic competition
d.
Oligopoly
a
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
82. The government considers a market to be unconcentrated if its HHI number is less than ____, and highly concentrated
if that number exceeds ____.
a.
1,000; 1,800
b.
100; 9,000
c.
50; 500
d.
500; 1,300
a
Difficult
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
83. If all large firms in the economy were broken into smaller firms, the result might be
a.
decreased manufacturing efficiency in some industries.
b.
increased prices for some manufactured goods.
c.
decreased investment in research and development in some industries.
d.
All of the above are correct.
Difficult
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
84. Concentration increases in an industry
a.
if the larger firms gain control of important resources, squeezing out smaller firms.
b.
if some firms become technologically superior over time.
c.
if innovation increases plant size of some firms and lowers their cost.
d.
All of the above are correct.
Difficult
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
85. Looking at the record of concentration in the United States during the last century, one finds concentration has
a.
steadily increased.
b.
risen dramatically in the past 15 years.
c.
changed very little.
d.
fallen steadily except in wartime.
c
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Measuring Market Power: Concentration
86. Following mergers that raised the market shares of two airlines to 79 and 82 percent, respectively, of traffic in their
hub cities, prices of service rose and the quantities of service fell, even though in most other markets prices fell and
quantities increased. The result suggests that these markets
a.
were contestable.
b.
were monopolized.
c.
become more competitive due to oligopolistic rivalries.
d.
had no barriers to entry.
Difficult
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Measuring Market Power: Concentration
87. When firms have had to defend themselves against the charge that they have adopted unjustifiably low prices either to
drive a competitor out of business or to prevent the entry of a rival, they have been accused of
a.
creating a trust.
b.
conspiracy.
c.
predatory pricing.
d.
price discrimination.
c
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
88. A firm that charges a very low price would be practicing predatory pricing if
a.
the price allowed only a small profit.
b.
the price would only be profitable if it succeeded in driving a rival out of the market.
c.
the price allowed profits that were positive but below those earned by other firms.
d.
it only offered the low price to its rivals’ customers.
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
89. Microsoft is accused of which anti-competitive practice?
a.
interlocking directorates
b.
illegal “bundling” of products
c.
exclusive contracts
d.
predatory pricing
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
90. A home appliances supplier offers substantial discounts to customers if they buy several of the firm’s products. When
bought together, these items cost considerably less than the sum of the prices of the items if they were bought separately.
Which pricing arrangement is being discussed here?
a.
Price dealing
b.
Tacit collusion
c.
Bundling
d.
Skimming
c
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
91. Which of the following acts prohibited false advertising?
a.
Sherman Act
b.
Clayton Act
c.
Federal Trade Commission Act
d.
Celler-Kefauver Act
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
92. The federal government has the power to investigate and to try to block
a.
only voluntary mergers between firms.
b.
only hostile takeovers.
c.
only friendly takeovers.
d.
any combining of the ownership of previously independent firms that increases concentration.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
93. The Department of Justice generally
a.
is not involved in merger policy.
b.
opposes horizontal mergers but permits conglomerate mergers.
c.
opposes only mergers that might reduce competition.
d.
opposes mergers whose apparent motive is obtaining economies of scale.
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Anticompetitive Practices and Antitrust
94. The federal government is most likely to oppose
a.
the purchase of a firm in danger of bankruptcy by a successful firm.
b.
a merger between two firms in a perfectly competitive industry.
c.
the purchase of one oligopolist by another in an industry with contestable markets.
d.
a merger between two firms in a three-firm industry.
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Anticompetitive Practices and Antitrust
95. The Justice Department and the Federal Trade Commission are likely to oppose mergers
a.
that seem likely to increase efficiency.
b.
that create a larger firm with economies of scale in a contestable market.
c.
which will help one of the merging firms out of financial difficulties.
d.
which threaten to reduce competition.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
96. Which of the following acts prohibited predatory pricing?
a.
Robinson-Patman Act
b.
Tunney Act
c.
Clayton Act
d.
Sherman Act
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
97. Firm A’s motive in filing an antitrust suit against Firm B may be
a.
to seek court protection against genuinely unfair practices by Firm B.
b.
to seek financial compensation for damages caused by Firm B.
c.
to create an expensive nuisance for Firm B.
d.
All of the above are correct.
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Anticompetitive Practices and Antitrust
98. Some critics of antitrust are worried that some firms
a.
will seek to increase competition to a dangerous level.
b.
will collude in order to avoid the laws.
c.
may use antitrust to prevent competition.
d.
may go out of business from large damage awards.
c
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
99. In the case of Intimate Bookshop v. Barnes & Noble, Intimate alleged that Barnes & Noble
a.
was bundling products in order to reduce competition.
b.
used technological advances to sell at lower prices.
c.
was buying books at discriminatory prices.
d.
had merged with other competitors in an effort to gain monopoly power.
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Anticompetitive Practices and Antitrust
100. What would the Herfindahl-Hirschman Index equal for an industry consisting of six firms with market shares of
40%, 30%, 20%, 5%, 3%, and 2%?
a.
0.95
b.
2.934
c.
2,938
d.
10,000
c
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Regulation – What is Regulation?
BLOOMS: Application
101. What would the Herfindahl-Hirschman Index equal for an industry consisting of six firms with market shares of 5%,
10%, 15%, 20%, 25%, and 25%?
a.
100
b.
1,350
c.
1,375
d.
2,000
Easy
DISC: The role of government
United States – BPROG: Analytic
The role of government
Regulation – What is Regulation?
BLOOMS: Application
102. What would the Herfindahl-Hirschman Index equal for an industry consisting of 20 firms with each holding a 5%
market share?
a.
20
b.
100
c.
500
d.
2,500
c
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Regulation – What is Regulation?
BLOOMS: Application
103. For the two industries with market shares listed below, which of the following would be true?
Table 13-1
Firm-1
Firm-2
Firm-3
Firm-4
Firm-5
Firm-6
Industry A
50%
10%
10%
10%
10%
10%
Industry B
20%
20%
20%
20%
10%
10%
a.
The concentration ratio would be the same for both industries but the HHI would be higher for Industry A.
b.
The concentration ratio would be the same for both industries but the HHI would be higher for Industry B.
c.
The HHI would be the same for both industries but the concentration ratio would be higher for Industry B.
d.
Both the concentration ratio and the HHI would be the same for both industries.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Part 2: Regulation – What is Regulation?
BLOOMS: Application
104. The current deregulatory movement began to change laws to deregulation in the
a.
early 1970s.
b.
late 1970s.
c.
early 1980s.
d.
early 1990s.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Regulation – What is Regulation?
105. Following deregulation in the airline industry
a.
small carriers have gone out of business but large carriers have not.
b.
large carriers have gone out of business but small carriers have not.
c.
both large carriers and small carriers have gone out of business.
d.
neither large carriers nor small carriers have gone out of business.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Regulation – What is Regulation?
106. If there are strong economies of scale and scope, then society
a.
will not be able to prevent overt collusion.
b.
will benefit from establishing a cartel.
c.
cannot benefit from regulation of a natural monopoly.
d.
will not be able to preserve free competition.
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Some Objectives of Regulation
107. When it is cheaper for one firm to produce a particular product, ____ exist(s).
a.
economies of scale
b.
economies of scope
c.
diminishing marginal returns
d.
cross-subsidization
a
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
108. When it is cheaper for one firm to produce a number of different commodities together than it is for a group of small
firms to produce those commodities, ____ exist(s).
a.
economies of scale
b.
economies of scope
c.
diminishing marginal returns
d.
marginal-cost pricing
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
109. Economies of scope are savings acquired by
a.
producing many goods simultaneously.
b.
producing enough of one good to reach the minimum efficient scale of production.
c.
selling one product at a loss but selling other products at a profit.
d.
decreasing the regulation of an industry.
a
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
110. Using specialized equipment to produce simultaneously a number of similar items
a.
leads to economies of scale.
b.
is the goal of deregulation.
c.
can only happen in a high technology nation.
d.
is called economies of scope.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
111. “Economies of scope” occur when
a.
fixed costs are high and marginal costs are low.
b.
a monopoly can produce for the entire market.
c.
similar production techniques can be applied to several products.
d.
costs are fully distributed.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
112. Railroads have received significant attention from regulators because
a.
railroads enjoy significant economies of scale.
b.
conditions in the railroad industry are conducive to destructive competition.
c.
regulators would like to ensure universal service to all potential railroad customers.
d.
All of the above are correct.
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
113. Economies of scale imply: (i) a continuously falling AC curve; (ii) a larger output is more efficient than a smaller
output.
a.
i and ii
b.
i but not ii
c.
ii but not i
d.
neither i nor ii
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
114. Changes in the rate charged by electric power companies are subject to government control because
a.
the electric power companies are government enterprises.
b.
consumer ignorance makes it impossible to know what rates are fair.
c.
the electric power companies are monopolies of a service that is important to buyers.
d.
cutthroat competition would probably occur if the government did not intervene.
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Some Objectives of Regulation
115. A regulatory agency concerned with “universal service” must
a.
prevent high profits in all markets.
b.
prevent entry in high-profit markets.
c.
prevent cross-subsidization.
d.
guarantee marginal cost pricing.
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Some Objectives of Regulation
116. “Cream skimming” usually results in
a.
cross-subsidization of markets.
b.
subsidies to rural consumers of the service.
c.
regulations to provide universal service.
d.
monopoly.
c
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Some Objectives of Regulation
117. Before the breakup of AT&T several years ago, profits on long-distance calls offset losses on basic residential
service. This practice is known as
a.
abuse of monopolistic power.
b.
cream skimming.
c.
cross-subsidization.
d.
the Ramsey rule.
c
Moderate
DISC: The role of government
United States – BPROG: Reflective Thinking – BPROG: Analysis
The role of government
Some Objectives of Regulation
118. “Rate averaging” is only possible if
a.
the firm is protected from price competition and new entry.
b.
the firm is protected from losses resulting from unsuccessful innovation.
c.
the firm can choose the level of service it wishes to provide.
d.
“cream skimming” is permitted.
a
Moderate
DISC: The role of government
United States – BPROG: Analytic
The role of government
Some Objectives of Regulation
119. The prices that are in the public’s best interest will
a.
always allow the regulated firm to break even.
b.
always allow the regulated firm to make positive economic profits.