Antitrust and Regulation Chapter 13

Question 1

The government can deal with monopoly through

Accepted Answer

d. all of the above

Answer

a. nationalization.

Answer

b. regulation.

Answer

c. laissez-fair policy.

Question 2

The theory of creative destruction

Accepted Answer

a. is a reason why the government might pursue a laissez-fair policy.

Answer

b. says that once a firm is a monopoly, it will destroy all its competitors.

Answer

c. says that average cost pricing will remove incentives for firms to keep costs down

Answer

d. was the foundation for the Clayton Antitrust Act.

Question 3

According to the theory of countervailing power

Accepted Answer

c. the market power of one economic bloc is moderated by the power of other economic blocs.

Answer

a. firms should not be nationalized because the government has no incentives to keep losses down.

Answer

b. monopoly power is moderated by the potential threat of firms entering the market.

Answer

d. monopoly power to control prices can only be moderated by government regulation.

Question 4

Which of the following is NOT a reason the government might allow a firm to be the monopoly producer of a particular good?

Accepted Answer

a. There are decreasing returns to scale in the production of the good.

Answer

b. The firm is a natural monopoly.

Answer

c. Firms are more likely to develop new products if they can be the sole producer for a period of time.

Answer

d. According to the theory of creative destruction, other firms will eventually eliminate the firm's monopoly power.

Question 5

Which of the following industries has NOT been deregulated in the past 20 years?

Accepted Answer

d. the clothing industry

Answer

a. the telephone industry

Answer

b. the airline industry

Answer

c. the electric power industry

Question 6

If the government imposes marginal cost pricing on a natural monopoly,

Accepted Answer

b. the firm will lose money at the imposed price unless it receives a subsidy.

Answer

a. the firm will have no incentive to keep losses down.

Answer

c. consumers will not buy at the imposed price unless they receive subsidies.

Answer

d. the firm will earn positive economic profits.

Question 7

If the government imposes average cost pricing on a natural monopoly,

Accepted Answer

a. the firm will have no incentive to keep losses down.

Answer

b. the firm will lose money at the imposed price unless it receives subsidies.

Answer

c. consumers will not buy at the imposed price unless they receive subsidies.

Answer

d. the firm will earn positive economic profits.

Question 8

According to the theory of contestable markets

Accepted Answer

b. monopoly power is moderated by the potential threat of firms entering the market.

Answer

a. firms should not be nationalized because the government has no incentives to keep losses down.

Answer

c. the market power of one economic bloc is moderated by the power of other economic blocs.

Answer

d. the firm's power to control prices can only be moderated by government regulation.

Question 9

Which of the following is not AUTOMATICALLY illegal under U.S. antitrust legislation?

Accepted Answer

d. merging with another company which supplies an input in production

Answer

a. charging lower prices in one market than in another in order to eliminate competition

Answer

b. attempting to monopolize an industry

Answer

c. forcing customers to sign exclusive contracts in which they agree not to buy from competitors

Question 10

Under the rule of reason,

Accepted Answer

c. a firm's size alone is insufficient reason to rule against it in an antitrust suit.

Answer

a. a firm's size is sufficient reason to rule against it in an antitrust suit.

Answer

b. nationalization should be the government policy of last resort.

Answer

d. a high Herfindahl index is sufficient proof of monopoly power in antitrust suits.

Question 11

Under the per se criterion

Accepted Answer

a. a firm size is sufficient reason to rule against it in an antitrust suit.

Answer

b. nationalization should be the government policy of last resort.

Answer

c. a firm's size alone is insufficient reason to rule against it in an antitrust suit.

Answer

d. the government must demonstrate that a firm has attempted "restraint of trade."

Question 12

In its antitrust suit against Microsoft, the government showed that the firm had nearly 100% of the business in its industry. This fact would be sufficient to win the case under the

Accepted Answer

b. per se criterion.

Answer

a. rule of reason criterion.

Answer

c. theory of creative destruction.

Answer

d. theory of countervailing power.

Question 13

The Acme Electronics Company, the largest manufacturer in the industry, required retailers selling its video games to stop selling its competitors' products. Which of the following describes Acme's behavior?

Accepted Answer

b. Acme used an exclusive contract to eliminate competition.

Answer

a. Acme used price discrimination to drive out its competition.

Answer

c. Acme attempted to form a cartel.

Answer

d. Acme engaged in godfather pricing

Answer

e. Acme engaged in collusion

Question 14

In Figure 1, if the government forced the firm to sell 80,000 units, it would be applying

Accepted Answer

a. marginal cost pricing.

Answer

b. a "fair" price.

Answer

c. average cost pricing

Answer

d. a laissez-faire policy.

Question 15

15. In Figure 1, the government forces the firm to charge a "fair" price. At this price, the firm sells 140,000 units and will earn _______ profits.

Accepted Answer

b. zero

Answer

a. positive

Answer

c. negative

Answer

d. We do not know enough to say.

Antitrust and Regulation Chapter 13

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