Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Government attempts to prohibit monopolization of a market are known
as A) | antitrust
regulation | B) | economic regulation | C) | social
regulation | D) | anticompetitive regulation | E) | Herfindahl
regulation | | |
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2.
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Government regulation of the prices charged by natural monopolies is an example
of A) | safety
regulation | B) | economic regulation | C) | Herfindahl
regulation | D) | antitrust regulation | E) | antimerger
regulation | | |
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3.
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Which
of the following is the best example of a natural monopoly? A) | gold mining in
the Colorado Rocky Mountains | B) | filmmaking in Hollywood | C) | electrical
service to homes in Seattle | D) | production of film by Kodak | E) | production of
computers by IBM | | |
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4.
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If a
firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is
a A) | local
monopoly | B) | resource monopoly | C) | monopsony | D) | output monopoly | E) | natural
monopoly | | |
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5.
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If
regulators set price equal to marginal cost for the natural monopoly in Exhibit 0204, then from the
usual profit-maximizing position, price moves from A) | $24 to $20, and
quantity increases from 5 to 8 | B) | $14 to $20, and quantity increases from 5 to
8 | C) | $24 to $18, and
quantity remains unchanged | D) | $24 to $18, and quantity increases from 5 to
8 | E) | $24 to $22, and
quantity increases from 5 to 10 | | |
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6.
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In
Exhibit 0205, the increase in consumer surplus that occurs when price is set equal to marginal
cost rather than at the profit-maximizing level, as it would be in an unregulated monopoly, is shown
by area A) | abc | B) | adf | C) | cef | D) | dfeg | E) | bcfd | | |
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7.
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Compared to the profit-maximizing outcome, average cost pricing (setting the price
where the average total cost and demand curves intersect) in natural monopoly leads
to A) | all of the
following | B) | a higher price | C) | decreased
consumer surplus | D) | the elimination of economic profit | E) | less
output | | |
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8.
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If a
monopolist is forced to set price equal to average total cost, economic profit A) | will be
negative, and the monopolist may go out of business | B) | will be
zero | C) | will be
positive | D) | will be negative, and the firm will stay in business if there
are significant fixed costs | E) | may be positive, negative, or zero | | |
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9.
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Suppose the local government is considering using marginal cost pricing (establishing
rates where marginal cost intersects demand) as opposed to average cost pricing (establishing rates
where average total cost and demand intersect) to set rates for a cable TV company. Which of the
following arguments supports marginal cost pricing? A) | Marginal cost
pricing gives the monopoly economic profit and a reason to stay in
business. | B) | Marginal cost pricing gives the firm a normal economic profit
and a reason to stay in business. | C) | Marginal cost pricing is allocatively
efficient. | D) | Average cost pricing requires subsidies, which can be
costly. | E) | Average cost pricing forces monopolies to operate at a
loss. | | |
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10.
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Producers play a disproportionately large role in influencing public regulation
because they have a strong interest in matters that affect their specialized source of
income.
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11.
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According to the special interest theory, the licensing of beauticians would
be A) | desired by
consumers to promote the public interest | B) | desired by beauticians to promote the public
interest | C) | discouraged by all beauty salons, large or
small | D) | desired by some beauticians to restrict entry into the
profession | E) | done strictly at the initiative of the
government | | |
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12.
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Regulation by the Interstate Commerce Commission resulted in higher prices and greater
inefficiency in the airline industry.
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13.
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For
the airline industry, the Civil Aeronautics Board A) | regulated prices in theory, but firms practiced price
competition anyway | B) | eliminated all forms of competition | C) | regulated
prices, although nonprice competition flourished | D) | allowed many new
long distance routes | E) | allowed only a few new airlines to
enter | | |
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14.
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Airline deregulation resulted in A) | higher fares, more passengers, but less
efficiency | B) | lower fares, fewer passengers, and greater
efficiency | C) | lower fares, greater capacity utilization, and greater
efficiency | D) | lower fares, higher wages for pilots, more passengers, but less
efficiency | E) | higher fares, higher wages for pilots, more passengers, and
greater efficiency | | |
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15.
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What
act of Congress declared restraint of trade illegal and declared any attempt at monopolizing
unlawful? A) | the
Celler-Kefauver Anti-Merger Act | B) | the Sherman Antitrust Act | C) | the Clayton
Act | D) | the Wheeler-Lea
Act | E) | the
Clayton-Celler Act | | |
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16.
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Which
agency was created by Congress in 1914 to investigate and regulate unfair methods of
competition? A) | the Department
of Justice | B) | the Federal Trade Commission | C) | the Interstate
Commerce Commission | D) | the General Accounting Office | E) | the Council on
Competitiveness | | |
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17.
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Which
act of Congress declared tying contracts, exclusive dealing, and price discrimination
illegal? A) | the
Wheeler-Kefauver Act | B) | the Sherman Antitrust Act | C) | the Clayton
Act | D) | the Wheeler-Lea
Act | E) | the
Celler-Kefauver Anti-Merger Act | | |
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18.
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Which
of the following was not prohibited by the Clayton Act of 1914, even if it reduced
competition? A) | merger
accomplished through the acquisition of another firm's stock | B) | merger
accomplished through the acquisition of another firm's assets | C) | price
discrimination that could not be justified on the basis of cost
differences | D) | exclusive dealing contracts | E) | interlocking
directorates | | |
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19.
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A
camera manufacturer will sell its cameras only to retailers who agree to buy its brand of film. This
is an example of A) | price
discrimination | B) | exclusive dealing | C) | a tying
contract | D) | interlocking directorates | E) | a
trust | | |
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20.
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Suppose an automobile manufacturer requires that all replacement parts for its cars be
bought only from its own dealers. This requirement is A) | a tying
contract, prohibited by the Sherman Antitrust Act if it substantially reduces
competition | B) | a tying contract, prohibited by the Clayton Act if it
substantially reduces competition | C) | an interlocking directorate, prohibited by the Sherman
Antitrust Act if it substantially reduces competition | D) | an interlocking
directorate, prohibited by the Clayton Act if it substantially reduces
competition | E) | a horizontal combination, prohibited by the Sherman Antitrust
Act if it substantially reduces competition | | |
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21.
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Price
fixing is illegal in the United States.
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22.
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Which
U.S. government agencies handle antitrust matters? A) | the Department
of Justice and Congress | B) | the Federal Trade Commission and
Congress | C) | the Federal Trade Commission and the Securities and Exchange
Commission | D) | the Department of Justice and the Council of Economic
Advisors | E) | the Department of Justice and the Federal Trade
Commission | | |
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23.
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Antitrust action in the United States A) | has followed an
inconsistent pattern of enforcement | B) | has always provided specific guidelines for acceptable
behavior | C) | applies only to natural monopolies | D) | involves suing a
competitive firm for changing its prices | E) | provides protection to those in regulated
industries | | |
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24.
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Copious Manufacturing Co. has an 85 percent market share. It has never price gouged,
has always been the first in the industry to introduce new and improved products, and earns positive
but not excessive profits. The U.S. Department of Justice sues Copious for monopolization. Having
hired the best legal minds in the country, Copious wins the case. What type of reasoning did the
court use in ruling in Copious' favor? A) | per se | B) | rule of
reason | C) | sui generis | D) | cave
canem | E) | Schumpeterian | | |
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25.
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According to the U.S. Supreme Court's 1945 ruling on Alcoa, A) | all monopolies
are illegal | B) | price fixing agreements are illegal under the rule of
reason | C) | small firms can be found to be in violation of the Sherman
Antitrust Act | D) | "mere size is no offense." | E) | possession of
market power is sufficient for a firm to be found in violation of the Sherman Antitrust
Act | | |
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26.
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The
Herfindahl index would be 5000 if the only two firms in an industry have equal market
shares.
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27.
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Holey
Donuts and Clair's Eclairs want to merge. Each has 2 percent of the local pastry market. It is most
likely that A) | the Department
of Justice would challenge the merger but the Federal Trade Commission would
not | B) | the Federal
Trade Commission would challenge the merger but the Department of Justice would
not | C) | the merger will
go unchallenged because it will not tend to reduce competition | D) | the government
will successfully challenge the merger because it is a horizontal merger | E) | the government
will successfully challenge the merger because it is a vertical merger | | |
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28.
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The
largest value the Herfindahl index can have is A) | 100, which would indicate a monopoly | B) | 100 for firms
equal in size | C) | 100,000 | D) | 10,000, which
would indicate a pure monopoly | E) | infinity | | |
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29.
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The
United States economy has experienced a decrease in competition over the last three
decades.
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30.
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A
private firm that sustains a financial loss because of an antitrust violation may be able to recover
three times the actual damages.
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