Question 1

To allow a public utility (which is a natural monopoly) to earn only a normal profit, the government should

Accepted Answer

A)  do all of the following
B)  set price equal to average cost
C)  equate marginal cost and average cost
D)  set marginal cost equal to marginal revenue
E)  set price equal to marginal cost

Question 2

Exhibit 15-5  The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Accepted Answer

A)  $15
B)  $20
C)  $25
D)  $30
E)  $35

Question 3

Exhibit 15-4  If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to

Accepted Answer

A)  a
B)  b
C)  c
D)  f
E)  e

Question 4

Economic regulation is government policy designed to

Accepted Answer

A)  improve health and safety in products and in working conditions
B)  prevent firms from monopolizing or developing a cartel in existing competitive markets
C)  eliminate existing monopolies by breaking them apart into many smaller firms
D)  create monopolies by forcing competitive firms to merge
E)  control price and output in industries where monopoly is desirable

Question 5

If those accused of antitrust violations sign a consent decree, they have

Accepted Answer

A)  agreed to stop doing what they are accused of doing
B)  admitted to guilt
C)  agreed to a court trial
D)  contested the charges against them
E)  charged the government with wrongdoing

Question 6

Over time, regulatory machinery may shift toward the special interests of producers, who, in effect, "capture" the regulating agency.

Accepted Answer

A) True 
 B)False  True

Question 7

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

Accepted Answer

A)  MR = MC
B)  P = MC
C)  MC = quantity demanded
D)  P = AC
E)  MR = AC D

Question 8

The Clayton Act of 1914

Accepted Answer

A)  was too vaguely worded to reduce anticompetitive behavior significantly
B)  prohibited conspiracies in restraint of trade
C)  prohibited price discrimination that reduces competition and cannot be justified based on cost differences
D)  created the Federal Trade Commission
E)  prohibited firms from reducing prices too far

Question 9

The Herfindahl index would be 5000 if the only two firms in an industry have equal market shares.

Accepted Answer

A) True 
 B)False  True

Question 10

Which of the following would not violate the Sherman Antitrust Act if the rule of reason was used to interpret the act?

Accepted Answer

A)  conspiring to monopolize
B)  formation of a trust company
C)  conspiring to restrain trade
D)  a single firm supplying all of a market with no close substitutes and some barriers to entry
E)  attempting to restrain trade with a foreign nation

Question 11

According to the special interest theory, the licensing of beauticians would be

Accepted Answer

A)  desired by consumers in order to promote the public interest
B)  desired by beauticians in order to promote the public interest
C)  discouraged by all beauty salons, large or small
D)  desired by some beauticians in order to restrict entry into their profession
E)  done strictly at the initiative of the government

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

A physicians' professional association supports legislation seeking higher quality medical care.According to the special interest theory of regulation, who likely will benefit most from this legislation?

Accepted Answer

A)  Government, through decreased regulation of physician quality.
B)  Patients, through reduced prices for medical care.
C)  Physicians, through increased prices for medical care.
D)  Hospitals, through decreased for physicians' services.
E)  Government, since higher quality health care is clearly in the public interest.

Question 14

In a natural monopoly, throughout the range of market demand,

Accepted Answer

A)  marginal cost exceeds average cost and therefore pulls average cost upward
B)  average cost exceeds marginal cost and therefore pulls marginal cost upward
C)  marginal cost is below average cost and therefore pulls average cost downward
D)  average cost is equal to marginal cost
E)  there are diseconomies of scale

Question 15

Antitrust policy is designed to

Accepted Answer

A)  improve health and safety in products and in working conditions
B)  regulate the firms in industries where "cut-throat" competition is potentially damaging
C)  create monopolies by forcing competitive firms to merge
D)  control price and output in industries where monopoly is desirable
E)  promote competition and reduce anticompetitive behavior

Question 16

Antitrust policy has no relationship to socially desirable market performance.

Accepted Answer

A) True 
 B)False

Question 17

If a firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is a

Accepted Answer

A)  local monopoly
B)  resource monopoly
C)  monopsony
D)  output monopoly
E)  natural monopoly

Question 18

Exhibit 15-5  Consider the natural monopoly depicted in exhibit 15-5.What price should regulators set in order for the natural monopolist to at least break-even?

Accepted Answer

A)  $5
B)  $10
C)  $15
D)  $20
E)  $25

Question 19

Which of the following is true when regulators require a natural monopolist to set price equal to marginal cost?

Accepted Answer

A)  This policy results in a less than socially optimal allocation of resources.
B)  The marginal cost of producing the last unit sold exceeds the consumers' marginal value for that last unit.
C)  The monopolist will face recurring losses unless a subsidy is provided.
D)  The monopolist will earn a normal profit.
E)  The monopolist will earn more than a fair return.

Question 20

Antitrust laws attempt to promote competition by controlling

Accepted Answer

A)  market structure only
B)  market conduct only
C)  market structure and performance
D)  market structure and conduct
E)  market structure, conduct, and performance

Exam 15: Economic Regulation and Antitrust Policy

To allow a public utility (which is a natural monopoly) to earn only a normal profit, the government should

Correct AnswerverifiedShow Answer

Exhibit 15-5 The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Correct AnswerverifiedShow Answer

Exhibit 15-4 If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to

Correct AnswerverifiedShow Answer

Economic regulation is government policy designed to

Correct AnswerverifiedShow Answer

If those accused of antitrust violations sign a consent decree, they have

Correct AnswerverifiedShow Answer

Over time, regulatory machinery may shift toward the special interests of producers, who, in effect, "capture" the regulating agency.

Correct AnswerverifiedTrue

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

Correct AnswerverifiedD

The Clayton Act of 1914

Correct AnswerverifiedShow Answer

The Herfindahl index would be 5000 if the only two firms in an industry have equal market shares.

Correct AnswerverifiedTrue

Which of the following would not violate the Sherman Antitrust Act if the rule of reason was used to interpret the act?

Correct AnswerverifiedShow Answer

According to the special interest theory, the licensing of beauticians would be

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A physicians' professional association supports legislation seeking higher quality medical care.According to the special interest theory of regulation, who likely will benefit most from this legislation?

Correct AnswerverifiedShow Answer

In a natural monopoly, throughout the range of market demand,

Correct AnswerverifiedShow Answer

Antitrust policy is designed to

Correct AnswerverifiedShow Answer

Antitrust policy has no relationship to socially desirable market performance.

Correct AnswerverifiedShow Answer

If a firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is a

Correct AnswerverifiedShow Answer

Exhibit 15-5 Consider the natural monopoly depicted in exhibit 15-5.What price should regulators set in order for the natural monopolist to at least break-even?

Correct AnswerverifiedShow Answer

Which of the following is true when regulators require a natural monopolist to set price equal to marginal cost?

Correct AnswerverifiedShow Answer

Antitrust laws attempt to promote competition by controlling

Correct AnswerverifiedShow Answer

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True

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