Question 1

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopolist will increase the price of its product to cover its higher cost.

Accepted Answer

A) True 
 B)False

Question 2

Merger guidelines developed by the Antitrust Division of the U.S.Department of Justice use four-firm concentration ratios as measures of concentration.

Accepted Answer

A) True 
 B)False

Question 3

If the market for a product begins as perfectly competitive and then becomes a monopoly,there will be a reduction in economic efficiency and a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 4

An example of a monopoly based on control of a key resource is

Accepted Answer

A)  Major League Baseball.
B)  the Paul Ecke Ranch monopoly on poinsettias.
C)  Microsoft's Windows operating system.
D)  the U.S.Food and Drug Administration.

Question 5

A monopoly differs from monopolistic competition in that

Accepted Answer

A)  a monopoly has market power while a firm in monopolistic competition does not have any market power.
B)  a monopoly can never make a loss but a firm in monopolistic competition can.
C)  in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.
D)  a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve.

Question 6

The Clayton Act prohibited

Accepted Answer

A)  all vertical mergers.
B)  all horizontal mergers.
C)  any merger if its effect was to substantially lessen competition or create a monopoly.
D)  all conglomerate mergers.

Question 7

Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's,a Taco Bell and a Kentucky Fried Chicken.Using a broad definition of a monopoly,Joe has a monopoly.

Accepted Answer

A) True 
 B)False

Question 8

Economic efficiency in a free market occurs when

Accepted Answer

A)  consumer surplus is maximized.
B)  producer surplus is maximized.
C)  the sum of consumer surplus and producer surplus is maximized.
D)  price is as low as possible.

Question 9

Collusion is

Accepted Answer

A)  common among monopoly firms.
B)  an agreement among firms to charge the same price or otherwise not to compete.
C)  necessary for firms to raise money by borrowing from investors or from banks in order to fund research and development required to develop new products.
D)  legal under U.S.antitrust laws if the intent is to increase competition.

Question 10

To have a monopoly in an industry there must be

Accepted Answer

A)  barriers to entry so high that no other firms can enter the industry.
B)  a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C)  an inelastic demand for the industry's product.
D)  a public franchise, making the monopoly the exclusive legal provider of a good or service.

Question 11

Which of the following statements is true?

Accepted Answer

A)  If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost.
B)  A monopolist will always charge the highest possible price.
C)  If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers.
D)  Because a monopolist faces no competition, the demand for its product is perfectly inelastic.

Question 12

A firm that has the ability to control to some degree the price of the product it sells

Accepted Answer

A)  is also able to dictate the quantity purchased.
B)  faces a demand curve that is inelastic throughout the range of market demand.
C)  is a price maker.
D)  faces a perfectly inelastic demand curve.

Question 13

The Sherman Act prohibited

Accepted Answer

A)  marginal cost pricing.
B)  setting price above marginal cost.
C)  collusive price agreements among rival sellers.
D)  selling below average total cost.

Question 14

A price maker is

Accepted Answer

A)  a person who actively seeks out the best price for a product that he or she wishes to buy.
B)  a firm that has some control over the price of the product it sells.
C)  a firm that is able to sell any quantity at the highest possible price.
D)  a consumer who participates in an auction where she announces her willingness to pay for a product.

Question 15

Figure 10-10
 
-Refer to Figure 10-10.The deadweight loss due to a monopoly is represented by the area

Accepted Answer

A)   FHE.
B)  FGE.
C)  GEH.
D)  FQ₁Q₂E.

Question 16

Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows:
a.Firm A: 30%
b.Firm B: 20%
c.Firms C,D and E: 10% each
d.Firms F,G,H and J: 5% each
What is the value of the four-firm concentration ratio and how is the industry categorized?

Accepted Answer

A)  50%; monopolistic competition
B)  70%; oligopoly
C)  75%; oligopoly
D)  80%; strongly oligopolistic

Question 17

Congress has divided the authority to police mergers between the Antitrust Division of the U.S.Department of Justice (AD) and the Federal Trade Commission (FTC) .How is this authority divided?

Accepted Answer

A)  The AD decides whether proposed horizontal mergers will be challenged; the FTC decides whether proposed vertical mergers will be challenged.
B)  Both the AD and the FTC are responsible for merger policy.
C)  The AD always renders its opinion on any proposed merger first.If the AD approves the merger, the case then goes to the FTC for final approval.If the AD disallows the merger, the decision stands and the FTC does not become involved.
D)  The AD establishes the guidelines that are used to evaluate proposed mergers; the FTC uses these guidelines to decide whether a proposed merger will be allowed to take place.

Question 18

A monopoly firm's demand curve

Accepted Answer

A)  is the same as the market demand curve.
B)  is perfectly inelastic.
C)  is more inelastic than the demand curve for the product.
D)  is inelastic at high prices and elastic at lower prices.

Question 19

Ordinarily,governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

Accepted Answer

A)  Patents encourage firms to spend money on research necessary to create new products.
B)  Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.
C)  Patents are an important source of government revenue.
D)  Patents are justified because they are an important means for creating network externalities.

Question 20

The possibility that the economy may benefit from having market power,rather than being very competitive,is closely identified with which famous economist?

Accepted Answer

A)  Arnold Harberger
B)  Joseph Schumpeter
C)  Sergey Brin
D)  Donald Turner

Exam 10: Monopoly and Antitrust Policy

To have a monopoly in an industry there must be

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The possibility that the economy may benefit from having market power,rather than being very competitive,is closely identified with which famous economist?

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Economic efficiency in a free market occurs when

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Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows: a.Firm A: 30% b.Firm B: 20% c.Firms C,D and E: 10% each d.Firms F,G,H and J: 5% each What is the value of the four-firm concentration ratio and how is the industry categorized?

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Which of the following statements is true?

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Merger guidelines developed by the Antitrust Division of the U.S.Department of Justice use four-firm concentration ratios as measures of concentration.

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The Sherman Act prohibited

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A firm that has the ability to control to some degree the price of the product it sells

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Collusion is

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A price maker is

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A monopoly firm's demand curve

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A monopoly differs from monopolistic competition in that

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Figure 10-10 -Refer to Figure 10-10.The deadweight loss due to a monopoly is represented by the area

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Congress has divided the authority to police mergers between the Antitrust Division of the U.S.Department of Justice (AD) and the Federal Trade Commission (FTC) .How is this authority divided?

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Ordinarily,governments attempt to promote competition in markets.Why do governments use patents to block entry into some markets when this prohibits competition?

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Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's,a Taco Bell and a Kentucky Fried Chicken.Using a broad definition of a monopoly,Joe has a monopoly.

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If the market for a product begins as perfectly competitive and then becomes a monopoly,there will be a reduction in economic efficiency and a deadweight loss.

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An example of a monopoly based on control of a key resource is

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The Clayton Act prohibited

Correct AnswerverifiedShow Answer

Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopolist will increase the price of its product to cover its higher cost.

Correct AnswerverifiedShow Answer

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