Question 1

What is the maximum value of the Herfindahl index?

Accepted Answer

A)  10
B)  100
C)  1,000
D)  10,000
E)  There is no maximum value of the Herfindahl index.F) B) and C)
G) All of the above

Question 2

Natural monopoly exists when

Accepted Answer

A)  one firm can supply the entire output demanded at lower cost than two or more firms can.
B)  one firm can supply the entire output demanded at higher cost than two or more firms can.
C)  one firm can supply the entire output demanded at the same cost as two or more firms.
D)  one firm controls all of the rights to a scarce resource.E) A) and D)
F) B) and C)

Question 3

Exhibit 25-5
​
 1; P3 B) Q1; P2 C) Q2; P3 D) Q3; P2 E) none of the above" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less)  then it will produce __________ quantity of output and charge a price of __________ per unit.

Accepted Answer

A)  Q1; P3
B)  Q1; P2
C)  Q2; P3
D)  Q3; P2
E)  none of the aboveF) C) and E)
G) B) and E)

Question 4

Exhibit 25-3
  ​
-Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Accepted Answer

A)  840.
B)  1,110.
C)  1,330.
D)  1,980.
E)  10,000.F) B) and E)
G) B) and C)

Question 5

The capture theory of regulation holds that regulators use their influence and power to support the well being of the regulatory agency itself.

Accepted Answer

A) True 
 B)False

Question 6

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

Accepted Answer

A)  horizontal
B)  vertical
C)  conglomerate
D)  parallelE) B) and C)
F) A) and B)

Question 7

The Wheeler-Lea Act of 1938

Accepted Answer

A)  made interlocking directorates illegal.
B)  set up the Federal Trade Commission (FT
C)   to deal with "unfair methods of competition."
C)  made monopolization of trade a misdemeanor.
D)  prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else.
E)  empowered the FTC to deal with false and deceptive acts or practices.F) All of the above
G) A) and D)

Question 8

An "interlocking directorate" is

Accepted Answer

A)  an arrangement whereby the leaders of a union are also in the top management of the business with which the union is dealing.
B)  selling to a retailer on the condition that the retailer not carry any rival products.
C)  an arrangement whereby the sale of one product is dependent on the purchase of some other product.
D)  an arrangement whereby the directors of one company sit on the board of directors of another company in the same industry.E) A) and C)
F) C) and D)

Question 9

The natural monopolist might have an incentive to decrease cost under

Accepted Answer

A)  price regulation.
B)  profit regulation.
C)  output regulation.
D)  a and bE) A) and B)
F) B) and D)

Question 10

Economists are nearly unanimous in their belief that small firms in highly competitive markets with many rivals are more likely to innovate than are firms with larger market shares.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an example of government regulation of a natural monopoly distorting incentives?

Accepted Answer

A)  A natural monopoly is held to average-cost pricing; therefore, it has little incentive to hold costs down.
B)  A natural monopoly is protected from competitors; therefore, it is rude to its customers.
C)  A natural monopoly is protected from competitors; therefore, it doesn't care much about the quality of the product it sells.
D)  a and c
E)  a, b, and cF) C) and D)
G) B) and E)

Question 12

The Herfindahl index for a monopoly is 1,000.

Accepted Answer

A) True 
 B)False

Question 13

The Herfindahl index measures the

Accepted Answer

A)  average market share of the firms in an industry.
B)  total market share of the four largest domestic firms in an industry.
C)  total market share of the four largest firms worldwide in an industry.
D)  degree of concentration in an industry.
E)  degree of competition among the four largest firms in an industry.F) B) and C)
G) A) and E)

Question 14

The primary intent of antitrust legislation is to

Accepted Answer

A)  ensure that product safety standards are met.
B)  eliminate positive economic profits.
C)  eliminate price discrimination.
D)  control monopoly power and preserve and promote competition.
E)  all of the aboveF) None of the above
G) D) and E)

Question 15

A good example of a vertical merger would need to be the merger between two automobile manufacturers.

Accepted Answer

A) True 
 B)False

Question 16

The type of merger that is most likely to change the degree of concentration, or competition, in an industry is the __________ merger.

Accepted Answer

A)  four-firm
B)  vertical
C)  two-firm
D)  horizontal
E)  none of the aboveF) A) and E)
G) B) and E)

Question 17

Exhibit 25-3
  ​
-Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

Accepted Answer

A)  rise to 50 percent; rise to 1,062
B)  rise to 28 percent; rise to 10,000
C)  rise to 60 percent; fall to 986
D)  rise to 59 percent; rise to 1,212
E)  not be affected; not be affectedF) B) and C)
G) B) and D)

Question 18

The Federal Trade Commission Act of 1914

Accepted Answer

A)  made interlocking directorates illegal.
B)  set up the Federal Trade Commission (FT
C)   to deal with "unfair methods of competition."
C)  made monopolization of trade a misdemeanor.
D)  prohibited suppliers from offering special discounts to large chain stores without offering them to everyone else.
E)  empowered the FTC to deal with false and deceptive acts or practices.F) A) and D)
G) A) and E)

Question 19

The Clayton Act of 1914

Accepted Answer

A)  made conspiracy in the restraint of trade illegal.
B)  made price discrimination, exclusive dealing, tying contracts, and the acquisition of competing companies' stock illegal when they "substantially lessen competition or tend to create a monopoly."
C)  declared "unfair methods of competition in commerce" illegal.
D)  attempted to decrease the failure rate of small businesses by protecting them from the competition of large and growing chain stores.
E)  banned anticompetitive mergers that occurred as a result of one company acquiring the physical assets of another company.F) C) and E)
G) A) and B)

Question 20

The market shares (in percentage terms)  for the 12 firms that comprise an industry are 15, 12, 11, 10, 8, 7, 7, 6, 6, 6, 6, and 6. The Herfindahl index will rise by __________ points if the firms with the two largest market shares merge.

Accepted Answer

A)  400
B)  360
C)  100
D)  220
E)  140F) A) and B)
G) B) and D)

Exam 25: Government and Product Markets Antitrust and Regulation

The Clayton Act of 1914

Correct AnswerverifiedShow Answer

The primary intent of antitrust legislation is to

Correct AnswerverifiedShow Answer

The capture theory of regulation holds that regulators use their influence and power to support the well being of the regulatory agency itself.

Correct AnswerverifiedShow Answer

Which of the following is an example of government regulation of a natural monopoly distorting incentives?

Correct AnswerverifiedShow Answer

What is the maximum value of the Herfindahl index?

Correct AnswerverifiedShow Answer

A good example of a vertical merger would need to be the merger between two automobile manufacturers.

Correct AnswerverifiedShow Answer

The Herfindahl index measures the

Correct AnswerverifiedShow Answer

Economists are nearly unanimous in their belief that small firms in highly competitive markets with many rivals are more likely to innovate than are firms with larger market shares.

Correct AnswerverifiedShow Answer

The natural monopolist might have an incentive to decrease cost under

Correct AnswerverifiedShow Answer

The market shares (in percentage terms) for the 12 firms that comprise an industry are 15, 12, 11, 10, 8, 7, 7, 6, 6, 6, 6, and 6. The Herfindahl index will rise by __________ points if the firms with the two largest market shares merge.

Correct AnswerverifiedShow Answer

Exhibit 25-3 ​ -Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Correct AnswerverifiedShow Answer

Natural monopoly exists when

Correct AnswerverifiedShow Answer

Exhibit 25-3 ​ -Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would ____________________ and the Herfindahl Index would _____________________.

Correct AnswerverifiedShow Answer

The Wheeler-Lea Act of 1938

Correct AnswerverifiedShow Answer

The Federal Trade Commission Act of 1914

Correct AnswerverifiedShow Answer

Exhibit 25-5 ​ -Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) then it will produce __________ quantity of output and charge a price of __________ per unit.

Correct AnswerverifiedShow Answer

The Herfindahl index for a monopoly is 1,000.

Correct AnswerverifiedShow Answer

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

Correct AnswerverifiedShow Answer

The type of merger that is most likely to change the degree of concentration, or competition, in an industry is the __________ merger.

Correct AnswerverifiedShow Answer

An "interlocking directorate" is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 25-3 -Refer to Exhibit 25-3. The Herfindahl Index for this industry is currently

Correct Answer
verified

Correct Answer
verified

Exhibit 25-3 -Refer to Exhibit 25-3. If Firms J, K, and L were to merge, the four-firm concentration ratio would and the Herfindahl Index would _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exhibit 25-5 -Refer to Exhibit 25-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) then it will produce quantity of output and charge a price of per unit.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified