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Exam 18: Competition Policy

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Question 41

Multiple Choice

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Some shops may provide a lot of information to a customer at a high cost to the store.If the customer then buys the product cheaper from a different store that does not provide this information, a free-rider problem emerges.A possible solution to this problem is:

A) resale price maintenance
B) cost-plus pricing
C) tying
D) marginal-cost pricing

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Question 42

Multiple Choice

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Suppose the government regulates a natural monopoly by making the firm charge marginal cost.In order for the firm to make zero economic profits the government must pay a subsidy to the firm.What amount should this subsidy be?

A) a subsidy of (Average Total Cost - marginal cost) per unit
B) a subsidy of (Average Variable Cost - marginal cost) per unit
C) a subsidy of (quantity*price) per unit
D) a subsidy of (quantity*marginal cost) per unit

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Question 43

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As the number of sellers in an oligopoly grows, an oligopolistic market looks less and less like a competitive market.

Explain the practice of resale price maintenance and discuss why it is controversial.

As the number of sellers in an oligopoly grows, an oligopolistic market looks more and more like a competitive market.

Transparent pricing may help a cartel to sustain high prices.

A common solution to the monopoly problem is for government agencies to regulate prices.

Why is doing nothing sometimes considered an appropriate strategy to deal with monopoly?

A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.

The information obtained from a retail outlet can be considered a:

Economists usually prefer private ownership to public ownership of natural monopolies because private owners have an incentive to:

A legitimate business reason for companies to merge is not to reduce competition but to:

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly has no incentive to exit the industry.

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of predatory pricing.

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Tying can be thought of as a form of price discrimination.

What is resale price maintenance, predatory pricing and tying?

The Australian law that controls mergers and prevents monopolists from abusing their market power is the Competition and Consumer Act 2010.

Government-run monopolies may lead to undesirable outcomes in the form of:

If regulators want to allow monopolists to keep some of the benefits from lower costs in the form of higher profit: