Chapter 17 Regulation and Antitrust Law

Size: px
Start display at page:

Download "Chapter 17 Regulation and Antitrust Law"

Transcription

1 Chapter 17 Regulation and Antitrust Law 17.1 Regulation 1) Regulation consists of rules administered by to influence economic activity by determining prices, product standards and types, and the conditions in which firms may enter an industry. A) the Supreme Court B) the Senate C) the President D) government agencies E) the states Answer: D Topic: Regulation 2) When a government agency establishes rules to influence economic activity, this process is referred to as A) regulation. B) public interest theory. C) capture theory. D) deregulation. E) a natural monopoly. Answer: A Topic: Regulation Author: PH

2 698 Bade/Parkin œ Foundations of Economics, Third Edition 3) If a utility company has to ask the Public Service Commission for a rate increase, the utility company i. is a perfectly competitive firm. ii. is regulated. iii. definitely is not making an economic profit. A) i only. B) ii only. C) iii only. D) i and ii. E) ii and iii. Topic: Regulation Author: SA 4) When a government agency removes the restrictions on prices, product standards and types, and the conditions under which firms can enter an industry, it is referred to as A) regulation. B) deregulation. C) anti-trust. D) underallocation. E) post-regulation. Topic: Deregulation Author: PH 5) Deregulation is defined as the A) use of government rules to regulate business activity. B) implementation of industry-wide restrictions on prices. C) theory of businesses maximizing profits with government assistance. D) removal of restrictions on business activities. E) change from public interest to the capture theory of regulation. Answer: D Topic: Deregulation Author: WM

3 Chapter 17 Regulation and Antitrust Law 699 6) The first national regulatory agency, set up in 1887, was the A) Federal Trade Commission. B) Interstate Commerce Commission. C) Federal Reserve Bank. D) Public Service Commission. E) Atomic Energy Commission. Topic: History of regulation Author: SA 7) The first national regulatory agency to be set up in the United States was the A) Environmental Protection Agency. B) Interstate Commerce Commission. C) Food and Drug Administration. D) Federal Aviation Administration. E) Federal Reserve System. Topic: History of regulation 8) The purpose of the first federal regulatory agency in the United States was to A) assure food safety. B) assure airplane safety. C) control prices and routes of railroads. D) measure the efficacy of new drugs. E) assure the safety of atomic energy plants. Topic: History of regulation Author: WM

4 700 Bade/Parkin œ Foundations of Economics, Third Edition 9) By the 1970s approximately what percentage of the economy was subject to some form of regulation? A) 10 percent B) 25 percent C) 3 percent D) 17 percent E) 67 percent Topic: History of regulation 10) Regulations over economic activity peaked during what time period? A) the 1990s B) the 1930s C) the 1970s D) the 1940s E) the 1900s Topic: History of regulation 11) Regulation of businesses in the United States can best be described as beginning in the A) late 1960s and growing steadily over the next 40 years. B) early 1900s and growing steadily over the next 80 years. C) 1930s and growing in spurts over the next 70 years. D) late 1800s and growing in spurts until the 1970s after which it has begun to move toward more deregulation. E) 1930s and growing in spurts until the 1970s after which it has grown more steadily. Answer: D Topic: History of regulation Author: WM

5 Chapter 17 Regulation and Antitrust Law ) The recent U.S.regulatory history from the 1970s onward can best be described as A) heavy regulation in the 1970s with deregulation afterward. B) heavy regulation in the 1970s with deregulation in the 1980s and re-regulation in the 1990s and 2000s. C) deregulation in the 1970s with re-regulation afterward. D) deregulation in the 1970s with re-regulation in the 1980s and deregulation in the 1990s and 2000s. E) continued increases in heavy regulation. Answer: A Topic: History of regulation Author: WM 13) A regulatory agency gets its operating budget from A) fines levied by firms caught breaking the law. B) Congress or state legislatures. C) private citizens who care about the regulatory process. D) products such as T-shirts and coffee mugs that they sell bearing their logos. E) taxes levied on the regulated firms. Topic: Regulatory process Author: WM

6 702 Bade/Parkin œ Foundations of Economics, Third Edition 14) Which of the following is NOT a common part of the regulatory process? i. appointments of people who run the regulatory agencies by the Administration, Congress, and state and local governments ii. price controls set by regulatory agencies iii. regulatory determination of the production technology iv. the establishment of operating rules for business firms A) i only. B) ii and iv. C) iii only. D) i, ii, and iii. E) ii, iii, and iv. Topic: Regulatory process 15) The public interest theory of regulation is defined as the A) use of regulations to maximize firms' profits. B) use of regulations to assure an efficient use of resources. C) removal of regulations on business activities. D) implementation and removal of regulations on the cable TV industry. E) use of rate of return regulation. Topic: Public interest theory Author: WM

7 Chapter 17 Regulation and Antitrust Law ) The public interest theory of regulation is that A) regulators help producers maximize economic profit. B) regulation seeks to increase the government's revenue. C) regulation causes producers to produce at a point where they are earning normal profits. D) regulation seeks an efficient use of resources. E) regulation focuses on the consumers' interests and ignores producers' interests. Answer: D Topic: Public interest theory Author: PH 17) Efforts by the government to regulate a firm and bring the price down to competitive levels A) reduces the consumer surplus. B) creates more deadweight loss. C) is what the public interest theory of regulation predicts regulators will do. D) is what the capture theory of regulation predicts regulators will do. E) is why rate of return regulation is considered the most efficient type of regulation. Topic: Public interest theory Author: SA 18) The public interest theory of regulation asserts that the purpose of regulating a natural monopoly is to i. minimize the deadweight loss created by a monopoly. ii. maximize economic profit. iii. minimize consumer surplus. A) i only. B) ii and iii. C) iii only. D) i and ii. E) ii only. Answer: A Topic: Public interest theory Skill: Level 3: Using models Author: SA

8 704 Bade/Parkin œ Foundations of Economics, Third Edition 19) The theory that regulation helps producers to maximize profit is the A) public interest theory. B) consumer surplus theory. C) antitrust theory. D) capture theory. E) oligopoly theory of regulatory bodies. Answer: D Topic: Capture theory 20) The capture theory of regulation is that regulations A) help producers to maximize economic profits. B) mean producers suffer losses. C) result in diseconomies of scale. D) benefit society, not producers. E) benefit the regulators, not the producers or the consumers. Answer: A Topic: Capture theory Author: PH 21) The capture theory of regulation predicts that A) regulation helps producers to maximize profits. B) regulators capture the firm's economic profit and transfer it to consumers as consumer surplus. C) regulators eliminate the deadweight loss a monopoly can create. D) resources are used efficiently. E) regulators capture the firm's economic profit and transfer it to themselves. Answer: A Topic: Capture theory Author: SA

9 Chapter 17 Regulation and Antitrust Law ) The capture theory of regulation is defined as A) the use of regulations to assure the efficient use of resources. B) the constant reapplication of regulation on the cable TV industry. C) the use of regulation to assist producers to maximize profits. D) the removal of regulations on business activities. E) regulation that focuses on consumers' interests and ignores producers' interests. Topic: Capture theory Author: WM 23) If the capture theory of regulation is correct, then A) a marginal cost pricing rule is used to ensure maximum profits. B) an average cost pricing rule is used to ensure an efficient output. C) the regulators let the firm produce where marginal cost equals marginal revenue to ensure maximum profits. D) subsidies are used to allow marginal cost pricing without an economic loss. E) regulation seeks an efficient use of resources. Topic: Capture theory Author: WM 24) A natural monopoly exists when A) diseconomies of scale exist in an industry. B) one firm can supply an entire market at a lower average total cost than can two or more firms. C) a firm can engage in price discrimination. D) the producers in an industry have formed a cartel. E) a monopoly firm faces a horizontal demand curve. Topic: Natural monopoly Author: PH

10 706 Bade/Parkin œ Foundations of Economics, Third Edition 25) A natural monopoly is one that arises from A) patent law. B) economies of scale. C) copyright law. D) any government-imposed barrier to entry. E) mergers. Topic: Natural monopoly 26) Which of the following is an example of a natural monopoly? A) the Pittsburgh Penguins hockey team, a National Hockey League team B) General Motors, the large automobile producing company C) Florida Power and Light, an electric utility in Florida D) Sony, the Japanese producer of the Playstation III E) JCPenney, the large department store chain Topic: Natural monopoly 27) With a natural monopoly A) no regulation is necessary because it is a natural monopoly. B) regulation takes the form of forcing competition from new firms. C) regulation takes the form of forcing the company out of business. D) regulation can take the form of average cost pricing to allow coverage of costs. E) regulation takes the form of breaking the company into several competing firms. Answer: D Topic: Natural monopoly Author: WM

11 Chapter 17 Regulation and Antitrust Law ) A natural monopoly's average cost curve i. intersects the demand curve while the average cost curve slopes downward. ii. reaches its minimum before it intersects the demand curve. iii. intersects the demand curve below the intersection of the marginal cost curve and the demand curve. A) i only. B) ii only. C) iii only. D) i and iii. E) i, ii, and iii. Answer: A Topic: Natural monopoly Author: SA 29) A firm that is a natural monopoly A) can supply the entire market at a lower cost than two or more firms. B) has very small fixed costs and very large marginal costs. C) is infrequently regulated because having one firm serve the market is economically sound. D) cannot make an economic profit if it is not regulated because it must serve a very large customer base. E) produces the efficient quantity of output when it is not regulated. Answer: A Topic: Natural monopoly Author: SA

12 708 Bade/Parkin œ Foundations of Economics, Third Edition 30) For a regulated natural monopoly, the marginal cost pricing rule is a rule that sets price marginal cost and achieves an amount of output. A) equal to; efficient B) above; inefficient C) below; efficient D) equal to; inefficient E) above; efficient Answer: A Topic: Natural monopoly, marginal cost pricing rule 31) A marginal cost pricing rule sets marginal cost equal to A) minimum average variable cost. B) price. C) average cost. D) marginal revenue. E) the smaller of price or marginal revenue. Topic: Natural monopoly, marginal cost pricing rule Author: PH 32) If a natural monopoly is regulated using A) a marginal cost pricing rule, the firm maximizes its profit. B) an average cost pricing rule, the firm incurs an economic loss. C) a total cost pricing rule, the firm will exit the industry. D) a marginal cost pricing rule, the firm incurs an economic loss. E) an average cost pricing rule, the firm maximizes its profit. Answer: D Topic: Natural monopoly, marginal cost pricing rule Author: WM

13 Chapter 17 Regulation and Antitrust Law ) Under a marginal cost pricing rule, a natural monopoly A) earns a reasonable profit. B) earns large economic profits. C) earns accounting profits, but breaks even in economic terms. D) incurs an economic loss. E) earns a normal profit but it cannot be determined whether or not it earns an accounting profit. Answer: D Topic: Natural monopoly, marginal cost pricing rule 34) To achieve efficiency in a market served by a natural monopoly, the regulatory agency must i. use an average cost pricing rule ii. require the firm to charge a price equal to marginal cost. iii. allow the firm to maximize its profit. A) i only. B) ii only. C) iii only. D) i and ii. E) ii and iii. Topic: Natural monopoly, marginal cost pricing rule Author: SA 35) For a natural monopoly, the efficient quantity is produced when A) P = ATC. B) P > ATC. C) P = MC. D) P > MC. E) P < MC. Topic: Natural monopoly, marginal cost pricing rule Author: SA

14 710 Bade/Parkin œ Foundations of Economics, Third Edition 36) Regulated natural monopolies can obey a marginal cost pricing rule and still earn a normal profit by engaging in A) least cost pricing and average cost pricing. B) price discrimination and two-part tariff pricing. C) zero profit pricing. D) profit-maximizing pricing. E) None of the above answers is correct because a natural monopoly regulated using a marginal cost pricing rule always incurs an economic loss. Topic: Natural monopoly, marginal cost pricing rule Author: PH 37) If a regulatory agency sets the price equal to marginal cost for a natural monopoly, the A) government might have to provide a subsidy to the firm to keep it in business. B) price is the same as the unregulated monopoly price. C) firm earns an economic profit, though not the maximum economic profit. D) firm earns the maximum economic profit. E) firm earns a normal profit. Answer: A Topic: Natural monopoly, marginal cost pricing rule Skill: Level 3: Using models Author: SA 38) A natural monopoly's output is less if it faces A) a marginal cost pricing rule than if it is unregulated. B) an average cost pricing rule than if it is unregulated. C) an average cost pricing rule than if it faces a marginal cost pricing rule. D) a marginal cost pricing rule than if it faces an average cost pricing rule. E) More information about the firm's demand is needed to determine how its output depends on what pricing rule it faces. Topic: Natural monopoly, marginal cost and average cost pricing rules Author: WM

15 Chapter 17 Regulation and Antitrust Law ) If we compare regulating a natural monopoly using marginal cost pricing to that using average cost pricing, we see that output is A) greater with marginal cost pricing but average cost pricing allows for costs to be covered. B) the same under both cases but the profit is greater with average cost pricing. C) greater under average cost pricing but profits are greater with marginal cost pricing. D) the same but profits are greater with marginal cost pricing. E) greater with marginal cost pricing and the firm's profit is larger with marginal cost pricing. Answer: A Topic: Natural monopoly, marginal cost and average cost pricing rules Skill: Level 3: Using models Author: WM 40) When a firm is regulated so it uses an average cost pricing rule, the price A) exceeds average total cost. B) equals marginal cost. C) is less than marginal cost. D) equals average total cost. E) equals marginal revenue. Answer: D Topic: Natural monopoly, average cost pricing rule Author: PH 41) An average cost pricing rule is a rule that sets price average total cost to enable a regulated firm to cover its costs. A) slightly above B) far above C) below D) equal to E) None of the above answers is correct because an average cost pricing rule does not have any relationship between the price and the average total cost. Answer: D Topic: Natural monopoly, average cost pricing rule

16 712 Bade/Parkin œ Foundations of Economics, Third Edition 42) With an average cost pricing rule, the total output of a natural monopoly is the total output that occurs with a marginal cost pricing rule. A) greater than B) less than C) equal to D) greater than in the long run and less than in the short run than E) not comparable to Topic: Natural monopoly, average cost pricing rule

17 Chapter 17 Regulation and Antitrust Law ) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, how many households in Oakland are served? A) 20,000 B) 30,000 C) 40,000 D) 50,000 E) 10,000 Answer: A Topic: Natural monopoly, marginal cost pricing rule Skill: Level 3: Using models Author: MR

18 714 Bade/Parkin œ Foundations of Economics, Third Edition 44) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC is left unregulated, what is the price of cable television in Oakland? A) $40 B) $30 C) $20 D) $10 E) $50 Topic: Natural monopoly, average cost pricing rule Skill: Level 3: Using models Author: MR 45) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under a marginal cost pricing rule, how many households in Oakland are served? A) 20,000 B) 30,000 C) 40,000 D) 50,000 E) 10,000 Topic: Natural monopoly, marginal cost pricing rule Skill: Level 3: Using models

19 Chapter 17 Regulation and Antitrust Law ) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under a marginal cost pricing rule, what is the price of cable television in Oakland? A) $40 B) $30 C) $20 D) $10 E) $0 Answer: D Topic: Natural monopoly, marginal cost pricing rule Skill: Level 3: Using models 47) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under an average cost pricing rule, how many households in Oakland are served? A) 20,000 B) 30,000 C) 40,000 D) 50,000 E) None of the above answers is correct. Topic: Natural monopoly, marginal cost pricing rule Skill: Level 3: Using models

20 716 Bade/Parkin œ Foundations of Economics, Third Edition 48) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. If TWC operated under an average cost pricing rule, what is the price of cable television in Oakland? A) $40 B) $30 C) $20 D) $10 E) $50 Topic: Natural monopoly, average cost pricing rule Skill: Level 3: Using models 49) The above figure represents the market for cable television in Oakland, Florida. Time Warner Communications (TWC) is the sole provider of cable television to the residents of this Central Florida community. Compared to a marginal cost pricing rule, under an average cost pricing rule, TWC output by households. A) increases; 20,000 B) decreases; 10,000 C) increases; 30,000 D) decreases; 50,000 E) decreases; 40,000 Topic: Natural monopoly, marginal cost and average cost pricing rule Skill: Level 3: Using models

21 Chapter 17 Regulation and Antitrust Law ) A regulation that sets the price at a level that enables a regulated firm to earn a specified target percent return on its capital is called A) consumer surplus regulation. B) producer surplus regulation. C) capital regulation. D) rate of return regulation. E) rate of profit regulation. Answer: D Topic: Natural monopoly, rate of return regulation 51) Rate of return pricing A) forces regulated firms to suffer losses. B) allows regulated firms to set price equal to marginal cost. C) forces regulated firms to use marginal cost pricing. D) allows a regulated firm to earn a specified target rate of return. E) allows a regulated firm to choose whether it will be regulated using a marginal cost pricing rule or an average cost pricing rule. Answer: D Topic: Natural monopoly, rate of return regulation Author: PH 52) A natural monopoly A) faces more competition after regulation. B) might exaggerate its costs if it is regulated using rate of return regulation. C) might falsely minimize its costs if it is regulated using rate of return regulation. D) might falsely minimize its costs if it is regulated using a marginal cost pricing rule. E) is allowed to maximize its profit under a marginal cost pricing rule. Topic: Natural monopoly, rate of return regulation Author: SA

22 718 Bade/Parkin œ Foundations of Economics, Third Edition 53) One of the tendencies that is common among firms regulated using rate of return regulation is to A) increase production to an inefficient level. B) exaggerate the costs of production. C) incur losses. D) understate the costs of production. E) overstate their total revenue. Topic: Natural monopoly, rate of return regulation 54) If a natural monopoly exaggerates its costs, then A) it earns a normal profit. B) its average cost curve shifts downward. C) with rate of return regulation, the price it is allowed to charge rises. D) with price cap regulation, the price it is allowed to charge rises. E) the firm definitely incurs an economic loss. Topic: Natural monopoly, rate of return regulation Author: SA 55) Regulation that motivates firms to reduce costs so that they can make and keep all or part of an economic profit is called A) price cap regulation. B) exaggerated cost regulation. C) capturing the regulator. D) rate of return regulation. E) marginal profit regulation. Answer: A Topic: Price cap regulation Author: SA

23 Chapter 17 Regulation and Antitrust Law ) Price cap regulation is defined as regulation that A) motivates the firm to operate efficiently and keep costs under control. B) encourages firms to exaggerate costs to increase profits. C) uses marginal cost pricing to ensure efficient output. D) uses average cost pricing to ensure costs are covered. E) is essentially the same as rate of return regulation. Answer: A Topic: Price cap regulation Author: WM 57) Price cap regulation A) does not provide incentives to firms to minimize their costs because firms cannot change prices. B) sets the maximum price these firms can charge. C) gives firms the incentive to exaggerate their costs. D) Both answers A and C are correct. E) Both answers A and B are correct. Topic: Price cap regulation Author: SA 58) Under earnings-sharing regulation, if a firm's profits above a certain level, they must be shared with the firm's. A) rise; customers B) fall; customers C) rise; suppliers D) fall; suppliers E) rise; competitors Answer: A Topic: Price cap regulation

24 720 Bade/Parkin œ Foundations of Economics, Third Edition 59) A cartel is a collusive agreement among a number of firms that is designed to A) expand output and lower prices but not to a predatory level. B) restrict output and lower prices to a predatory level. C) restrict output and raise prices. D) expand output and raise prices. E) expand output and lower prices to a predatory level. Topic: Cartel regulation 60) If public interest regulation is used to regulate an oligopoly, A) it is done so in order to insure that the oligopoly is able to maximize profits. B) the output is equal to the monopoly output. C) the output is equal to the perfectly competitive output. D) producer's interests will be met. E) the output is the same as if the industry was not regulated. Topic: Cartel regulation Author: SA 61) Regulation over the taxicab industry in New York City is designed to maintain a safe fleet of cabs and a high-quality pool of drivers by limiting the number of cabs. Ignoring the presence of illegal cabs, the consequences of this regulation have been to cab fares and the number of cabs rides per day. A) raise; increase B) raise; decrease C) lower; increase D) lower; decrease E) raise; not change Topic: Cartel regulation Skill: Level 5: Critical thinking

25 Chapter 17 Regulation and Antitrust Law ) Suppose the government decides to re-regulate the airline market. The above figure represents a possible situation at the Ronald Reagan International Airport in Washington, D.C. Under producer interest regulation, how many flights leave this airport each day? A) 0 B) 400 C) 600 D) 1,000 E) 800 Topic: Cartel regulation Skill: Level 3: Using models

26 722 Bade/Parkin œ Foundations of Economics, Third Edition 63) Suppose the government decides to re-regulate the airline market. The above figure represents a possible situation at the Ronald Reagan International Airport in Washington, D.C. Under producer interest regulation, what is the average price per flight? A) $1,000 B) $600 C) $400 D) $200 E) $800 Topic: Cartel regulation Skill: Level 3: Using models 64) Suppose the government decides to re-regulate the airline market. The above figure represents a possible situation at the Ronald Reagan International Airport in Washington, D.C. Under public interest regulation, how many flights leave this airport each day? A) 0 B) 400 C) 600 D) 1,000 E) 800 Topic: Cartel regulation Skill: Level 3: Using models 65) Suppose the government decides to re-regulate the airline market. The above figure represents a possible situation at the Ronald Reagan International Airport in Washington, D.C. Under public interest regulation, what is the average price per flight? A) $1,000 B) $600 C) $400 D) $200 E) $0 Topic: Cartel regulation Skill: Level 3: Using models

27 Chapter 17 Regulation and Antitrust Law Antitrust Law 1) Antitrust law is defined, in part, as law that A) forces customers to trust companies' intentions. B) forces perfectly competitive firms to produce an adequate quantity of output. C) prohibits certain kinds of market behavior. D) regulates firms that work in the medical industry where trust is essential. E) limits the amount of output that firms can produce. Topic: Antitrust law Objective: Checkpoint 17.2 Author: WM 2) The focus of antitrust legislation is to A) encourage cartels to form because they are easier to regulate. B) maintain competition. C) force society to act in the best interest of producers. D) limit the power of regulatory bodies. E) ensure that producers earn enough profit to stay in business so that consumers are not harmed by too many businesses closing. Topic: Antitrust law Objective: Checkpoint 17.2 Author: PH 3) The first antitrust law in the United States was the A) Sherman Act, passed in B) Clayton Act, passed in C) Clayton Act, passed in D) Sherman Act, passed in E) Sherman Act, passed in Answer: D Topic: Sherman Act Objective: Checkpoint 17.2 Author: WM

28 724 Bade/Parkin œ Foundations of Economics, Third Edition 4) The first antitrust law to be enacted in the United States was the A) Robinson-Patman Act. B) Celler-Kefauver Act. C) Sherman Act. D) Clayton Act. E) Bade-Parkin Act. Topic: Sherman Act Objective: Checkpoint 17.2 Author: PH 5) Section 1 of the Sherman Antitrust Act declares what to be illegal? A) every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations B) mergers of a horizontal nature C) any attempt to monopolize an industry D) sharing of technology among competing firms or mergers where the effect is to lessen competition E) exiting an industry if the remaining firm or firms have a market share that is too large. Answer: A Topic: Sherman Act Objective: Checkpoint ) According to Section 2 of the Sherman Act, which of the following is a felony? A) mergers of a vertical nature B) horizontal mergers C) attempts to monopolize an industry D) price increases among competing firms that occur simultaneously E) using the HHI to justify a merger Topic: Sherman Act Objective: Checkpoint 17.2

29 Chapter 17 Regulation and Antitrust Law 725 7) As a result of a wave of mergers in the early part of the twentieth century, which act was passed? A) the Anti-Merger Act of 1900 B) the Sherman Act C) the Clayton Act D) the Horizontal Merger Act of 1919 E) the Pro-Competition Act of 1912 Topic: Clayton Act Objective: Checkpoint ) In the United States, antitrust laws A) do not allow one person to be a director of two competing firms if it lessens competition. B) break up a company if it is too large because "size itself is an offense." C) do not always prosecute firms if they have fixed their prices. D) regard excess competition as a felony under Section 3 of the Sherman Act. E) place a maximum limit of 125 firms that are allowed to compete in any market. Answer: A Topic: Clayton Act Objective: Checkpoint 17.2 Author: SA 9) Under the Clayton Act and its amendments, if it creates monopoly, which of the following activities is illegal? A) exit of a firm from a market with 4 or fewer surviving firms B) price hikes among competing firms C) price discrimination D) patents that result in price hikes E) entry of a firm into a new market Topic: Clayton Act Objective: Checkpoint 17.2

30 726 Bade/Parkin œ Foundations of Economics, Third Edition 10) Under the Clayton Act and its amendments, if it creates monopoly, which of the following activities is illegal? i. contracts that require other goods to be bought from the same firm ii. contracts that prevent a buyer from reselling a product outside a specified area iii. becoming a director of a competing firm A) i only. B) ii only. C) ii and iii. D) i and iii. E) i, ii, and iii. Answer: E Topic: Clayton Act Objective: Checkpoint ) If a firm, Best Computer Buys, requires its customers to buy software exclusively from it when the customers purchase a computer, the company's policy is called A) an exclusive deal. B) a territorial confinement. C) a tying arrangement. D) pricing discrimination. E) predatory pricing. Topic: Clayton Act Objective: Checkpoint 17.2 Author: SA

31 Chapter 17 Regulation and Antitrust Law ) Under what conditions would it be legal for two bakeries in Minneapolis to explicitly agree to raise their prices by 5 percent? A) if the price rise was not predatory B) if the price rise did not measurably increase producer surplus C) never D) if the price rise did not harm consumers in the long run by reducing competition E) if the price rise was necessary to keep one or both bakeries from closing. Topic: Price fixing Objective: Checkpoint ) The government believes that which entry barrier has allowed Microsoft to gain monopoly power? A) ownership of the entire supply of a resource B) patents C) trademarks D) economies of scale and network economies E) territorial confinement Answer: D Topic: United States versus Microsoft Objective: Checkpoint ) When an oligopoly reduces its price with the intent of driving away its competitors, it is said to be engaging in A) pricing differential. B) predatory pricing. C) price fixing. D) a price-tying agreement. E) price discrimination. Topic: Predatory pricing Objective: Checkpoint 17.2 Author: SA

32 728 Bade/Parkin œ Foundations of Economics, Third Edition 15) If the Herfindahl-Hirschman Index in an industry is above 1,800, a merger that increases the Herfindahl-Hirschman Index by over 50 points will A) be allowed by the government. B) be challenged by the government. C) be encouraged by the government. D) increase competition in that industry. E) never be allowed to happen. Topic: Merger rules Objective: Checkpoint ) Which of the following indices does the Department of Justice use to determine whether or not to examine a merger? A) the Clayton Index of market concentration B) the producer concentration index C) the Herfindahl-Hirschman index D) the Sherman antitrust index E) the index of prices Topic: Merger rules Objective: Checkpoint 17.2 Author: PH 17) If the Herfindahl-Hirschman Index (HHI) for a market is between 1,000 and 1,800, the Department of Justice will examine A) all mergers. B) no mergers. C) mergers that raise the HHI by 100 or more points. D) mergers that raise the HHI by 100 or fewer point. E) mergers that lower the HHI by 100 or more points. Topic: Merger rules Objective: Checkpoint 17.2 Author: SA

33 Chapter 17 Regulation and Antitrust Law ) Suppose there are 6 firms in an industry with the following market shares. If the two smallest firms want to merge, how will the Department of Justice reply? Firm 1: 30 Firm 2: 25 Firm 3: 25 Firm 4: 10 Firm 5: 7 Firm 6: 3 A) The firms will be allowed to merge and compete with the larger firms. B) The firms will be challenged because the merger will raise the HHI by more than 50 points. C) The firms will not be allowed to merge. D) The firms will be challenged because the merger will raise the HHI by more than 100 points. E) The firms will be challenged because the merger will raise the HHI by more than 250 points. Answer: A Topic: Merger rules Skill: Level 4: Applying models Objective: Checkpoint 17.2 Author: CD 17.3 Integrative Questions 1) The assumption that regulation relentlessly seeks out deadweight loss and seeks to eliminate it is called the A) public interest theory of regulation. B) capture theory of regulation. C) Coase theory of regulation. D) socially optimal theory of regulation. E) predatory theory of regulation. Answer: A Topic: Integrative Objective: Integrative Author: PH

34 730 Bade/Parkin œ Foundations of Economics, Third Edition 2) regulation of a natural monopoly results in an efficient level of output. A) Efficient resale price maintenance B) Marginal cost pricing C) Average cost pricing D) Predatory pricing E) Tying Topic: Integrative Objective: Integrative Author: CD 3) If a natural monopoly is regulated so it uses a marginal cost pricing rule, the firm A) must have violated the Sherman Act. B) earns zero economic profit. C) might be able to use a two-part tariff to avoid incurring an economic loss. D) also faces earnings share regulation. E) finds that its HHI must fall. Topic: Integrative Objective: Integrative Author: CD 4) regulation of a natural monopoly results in an efficient level of output. A) Producer interest B) Predatory pricing C) Public interest D) Rate of return E) Sherman rate cap Topic: Integrative Objective: Integrative Author: CD

35 Chapter 17 Regulation and Antitrust Law 731 5) If a firm has become a natural monopoly, A) it has violated the Clayton Act. B) the Department of Justice approved its merger. C) regulators will require that it produce the efficient level of output. D) it might be regulated using price cap regulation. E) it cannot be charged with any violation of the antitrust laws. Answer: D Topic: Integrative Objective: Integrative Author: CD

36 732 Bade/Parkin œ Foundations of Economics, Third Edition 6) The figure above shows a natural monopoly that the government must regulate. If the government uses, the firm produces units per week. A) the HHI; 50 B) an average cost pricing rule; 30 C) rate of return regulation; 40 D) the Sherman Act; 30 E) a marginal cost pricing rule; 20 Topic: Integrative Skill: Level 3: Using models Objective: Integrative Author: CD

37 Chapter 17 Regulation and Antitrust Law 733 7) The figure above shows a natural monopoly that the government must regulate. Which of the following pairs most likely results in similar outcomes? A) resale price maintenance and rate of return regulation B) marginal cost pricing and a two-part tariff C) average cost pricing and rate of return regulation D) predatory pricing and price caps E) marginal cost pricing and price cap regulation Topic: Integrative Skill: Level 3: Using models Objective: Integrative Author: CD 8) Earnings share regulation occurs when A) the HHI for an industry exceeds 1,800. B) price cap regulation allows a firm's profits to rise above a target level. C) firms are regulated using marginal cost pricing. D) a firm violates the Sherman Act. E) a firm violates any antitrust law. Topic: Integrative Objective: Integrative Author: CD 9) Tying arrangements are A) illegal if they substantially lessen competition. B) used by regulators to force a monopoly to produce an efficient amount of production. C) used by regulators to force a monopoly to charge an efficient price. D) illegal according to the Sherman Act. E) necessary in order for a firm to price discriminate. Answer: A Topic: Integrative Objective: Integrative Author: CD

38 734 Bade/Parkin œ Foundations of Economics, Third Edition 10) Resale price maintenance is a form of A) regulation. B) marginal cost pricing. C) average cost pricing. D) agreeing about the price that will be charged. E) setting the price cap under price cap regulation. Answer: D Topic: Integrative Objective: Integrative Author: CD 11) If a firm engages in predatory pricing, it A) is following marginal cost pricing. B) is following average cost pricing. C) sets a low price to drive rivals out of business. D) has been regulated using a price cap. E) is guilty of price fixing. Topic: Integrative Objective: Integrative Author: CD 12) Because it was found guilty of violating the Sherman Act, Microsoft will be subject to A) rate of return regulation. B) marginal cost pricing. C) price cap regulation. D) predatory pricing. E) None of the above answers is correct. Answer: E Topic: Integrative Objective: Integrative Author: CD

39 Chapter 17 Regulation and Antitrust Law ) When the Department of Justice decides whether to allow firms in an industry to merge, it uses the to guide its decision. A) public interest theory B) HHI C) capture theory D) Sherman Act E) predatory pricing theory Topic: Integrative Objective: Integrative Author: CD

40

CH 17 sample MC Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

CH 17 sample MC Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Class: Date: CH 17 sample MC - 80 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Deregulation is defined as the a. use of government rules to regulate

More information

2013 CH sample questions - 200

2013 CH sample questions - 200 Class: Date: 2013 CH 9 17 18 sample questions - 200 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. When studying pollution and the environment, economists

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

17 REGULATION AND ANTITRUST LAW. Chapter. Key Concepts

17 REGULATION AND ANTITRUST LAW. Chapter. Key Concepts Chapter 17 REGULATION AND ANTITRUST LAW Key Concepts Market Intervention Regulation consists of rules administered by a government agency to that determine prices, product standards and types, and conditions

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Review 10-14-15 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1. The four-firm concentration ratio equals the percentage of the value of accounted

More information

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

CHAPTER 8: SECTION 1 A Perfectly Competitive Market

CHAPTER 8: SECTION 1 A Perfectly Competitive Market CHAPTER 8: SECTION 1 A Perfectly Competitive Market Four Types of Markets A market structure is the setting in which a seller finds itself. Market structures are defined by their characteristics. Those

More information

13 C H A P T E R O U T L I N E

13 C H A P T E R O U T L I N E PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly Tefft 2of 37 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

More information

PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER. PEARSON Prepared by: Fernando Quijano w/shelly Tefft

PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER. PEARSON Prepared by: Fernando Quijano w/shelly Tefft PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER PEARSON Prepared by: Fernando Quijano w/shelly Tefft 2 of 25 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

More information

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13=============================

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= Eco201 Review questions for chapters 13-15 Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= 1) A monopoly has two key features, which are. A) barriers to entry and close substitutes

More information

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

More information

Monopoly. Chapter 15

Monopoly. Chapter 15 Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

More information

Monopoly. Cost. Average total cost. Quantity of Output

Monopoly. Cost. Average total cost. Quantity of Output While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

Perfect Competition Chapter 7 Section 1

Perfect Competition Chapter 7 Section 1 Perfect Competition Chapter 7 Section 1 Four Conditions of Perfect Perfect competition is a market structure in which a large number of firms all produce the same product. Many buyers and sellers Identical

More information

Chapter 7: Market Structures

Chapter 7: Market Structures SCHS SOCIAL STUDIES What you need to know UNIT THREE 1. Describe 4 conditions that are in place for a perfectly competitive market 2. Describe and give characteristics of a monopoly 3. Describe and give

More information

Perfect Competition. Chapter 7 Section Main Menu

Perfect Competition. Chapter 7 Section Main Menu Perfect Competition What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? What are prices and output like in a perfectly competitive market?

More information

Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. Distinguish among three types

More information

Section I (20 questions; 1 mark each)

Section I (20 questions; 1 mark each) Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

More information

S11Microeconomics, Exam 3 Answer Key. Instruction:

S11Microeconomics, Exam 3 Answer Key. Instruction: S11Microeconomics, Exam 3 Answer Key Instruction: Exam 3 Student Name: Microeconomics, several versions Early May, 2011 Instructions: I) On your Scantron card you must print three things: 1) Full name

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

More information

Merger Analysis and Anti-Trust

Merger Analysis and Anti-Trust Merger Analysis and Anti-Trust Merger: The process in which two or more independently owned firms join under the same ownership. This process could be a merger, takeover, integration, or acquisition. It

More information

iv. The monopolist will receive economic profits as long as price is greater than the average total cost

iv. The monopolist will receive economic profits as long as price is greater than the average total cost Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

More information

Figure: Computing Monopoly Profit

Figure: Computing Monopoly Profit Name: Date: 1. Compared to perfect competition: A) monopoly produces more at a lower price. B) monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C) monopoly may

More information

14.1 Comparison of Market Structures

14.1 Comparison of Market Structures 14.1 Comparison of Structures Chapter 14 Oligopoly 14-2 14.2 Cartels Cartel in Korea Oligopolistic firms have an incentive to collude, coordinate setting their prices or quantities, so as to increase their

More information

Appendix N: Market Structure Law. TV Stations Ownership

Appendix N: Market Structure Law. TV Stations Ownership Appendix N: Antitrust and Market Structure Law Restrictions on size of ownership, and on vertical and horizontal ownership Examples Entry control: gov. licensing Merger Approvals Divestiture Media Ownership

More information

ECON December 4, 2008 Exam 3

ECON December 4, 2008 Exam 3 Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Economics Chapter 8 Competition and Markets

Economics Chapter 8 Competition and Markets Economics Chapter 8 Competition and Markets CHAPTER 8: SECTION 1 - A Perfectly Competitive Market Four Types of Markets o A is the setting in which a seller finds itself. Market structures are defined

More information

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C

ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C ECON 21 (Summer 216 Sections 1 & 11) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique

More information

Chapter 10 Pure Monopoly

Chapter 10 Pure Monopoly Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.

More information

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1 1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

More information

Chapter 13 Perfect Competition

Chapter 13 Perfect Competition Chapter 13 Perfect Competition 13.1 A Firm's Profit-Maximizing Choices 1) Is the number of sellers in the market the only thing that is different in each of the four market types economists study? Answer:

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

More information

Introduction. Learning Objectives. Learning Objectives. Chapter 28. Regulation and Antitrust Policy in a Globalized Economy

Introduction. Learning Objectives. Learning Objectives. Chapter 28. Regulation and Antitrust Policy in a Globalized Economy Chapter 28 Regulation and in a Globalized Economy Introduction Price fixing can occur in any industry when it is possible for firms to collude. Fashion-modeling agencies have become the subject of an antitrust

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

LESSON FIVE MAINTAINING COMPETITION

LESSON FIVE MAINTAINING COMPETITION LESSON FIVE MAINTAINING COMPETITION LESSON DESCRIPTION This lesson introduces the rationale for maintaining and strengthening competition, and illustrates the U.S. experience with antitrust laws and other

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Chapter 12. Monopoly. Chapter Outline. Key Ideas. Key Ideas. Introducing a New Market Structure. Evidence-Based Economics Example 11/25/2016

Chapter 12. Monopoly. Chapter Outline. Key Ideas. Key Ideas. Introducing a New Market Structure. Evidence-Based Economics Example 11/25/2016 Chapter 12 Modified by Chapter Outline 1. Introducing a New Market Structure 2. 3. 4. Choosing the Optimal Quantity and Price 5. The "Broken" Invisible Hand: The Cost of 6. 7. Government Policy toward

More information

Eco 202 Exam 2 Spring 2014

Eco 202 Exam 2 Spring 2014 Eco 202 Exam 2 Spring 2014 PLEASE ANSWER 50 OF THE FOLLOWING QUESTIONS. 1. Jon Brooks quit his job in a bicycle shop, where he earned $15,000 per year, to become a graduate student in economics. At the

More information

AP Microeconomics Chapter 11 Outline

AP Microeconomics Chapter 11 Outline I. Learning Objectives In this chapter students should learn: A. The characteristics of pure monopoly. B. How a pure monopoly sets its profit-maximizing output and price. C. The economic effects of monopoly.

More information

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm. Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

More information

Chapter 10 Lecture Notes

Chapter 10 Lecture Notes Chapter 10 Lecture Notes I. Pure Monopoly: An Introduction A. Definition: Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. B. There are

More information

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes. These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

More information

Practice Test for Final

Practice Test for Final Name: Class: Date: Practice Test for Final True/False Indicate whether the statement is true or false. 1. A public good or service can be consumed by paying and nonpaying customers alike. 2. An example

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Chapter 24. Introduction. Learning Objectives. Monopoly

Chapter 24. Introduction. Learning Objectives. Monopoly Chapter 24 Monopoly Introduction States have various licensing requirements for individuals who wish to practice specific professions. For example, Ohio requires a $100 license fee to become a kick boxer.

More information

ECON 251 Exam 2 Pink. Fall 2012

ECON 251 Exam 2 Pink. Fall 2012 ECON 251 Exam 2 Pink Use the table below to answer the following four questions The table below shows Harry s total utility from consuming beer and wine. The price of beer is $2 per bottle. The price of

More information

COST OF PRODUCTION & THEORY OF THE FIRM

COST OF PRODUCTION & THEORY OF THE FIRM MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

More information

Other examples of monopoly include Australia Post.

Other examples of monopoly include Australia Post. In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

More information

Chapter 7 Notes 20. Chapter 7 Vocab Practice 32. Be An Entrepreneur 30. Chapter 8 Notes 20. Cooperative Business Notes 20

Chapter 7 Notes 20. Chapter 7 Vocab Practice 32. Be An Entrepreneur 30. Chapter 8 Notes 20. Cooperative Business Notes 20 Name: Period: Week: 28 29 Dates: 3/2-3/16 Unit: Markets & Business Organizations Chapters: 7 8 Monday Tuesday Wednesday Thursday Friday 2 O *Chapter 7 9 E *Ch 8 *Cooperative Business Organization 3 E 4

More information

Monopoly CHAPTER. Goals. Outcomes

Monopoly CHAPTER. Goals. Outcomes CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

More information

Instructions: must Repeat this answer on lines 37, 38 and 39. Questions:

Instructions: must Repeat this answer on lines 37, 38 and 39. Questions: Final Exam Student Name: Microeconomics, several versions Early May, 2011 Instructions: I) On your Scantron card you must print three things: 1) Full name clearly; 2) Day and time of your section (for

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

Syllabus item: 57 Weight: 3

Syllabus item: 57 Weight: 3 1.5 Theory of the firm and its market structures - Monopoly Syllabus item: 57 Weight: 3 Main idea 1 Monopoly: - Only one firm producing the product (Firm = industry) - Barriers to entry or exit exists,

More information

Chapter 7 Market Structures

Chapter 7 Market Structures Chapter 7 Market Structures Section 1 Competition 2 Perfect Competition Perfect competition is when a large number of buyers and sellers exchange identical products under five conditions. There should

More information

The above Figure 1 shows the demand and cost curves facing a monopolist.

The above Figure 1 shows the demand and cost curves facing a monopolist. Practice 13&14 1) The key characteristics of a monopolistically competitive market structure include A) few sellers. B) sellers selling similar but differentiated products. C) high barriers to entry. D)

More information

Chapter 15 Oligopoly

Chapter 15 Oligopoly Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

More information

Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1. Understanding Profit Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

More information

Monopolistic Competition. Chapter 17

Monopolistic Competition. Chapter 17 Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

More information

AGENDA Tues 1/19. QOD #5: Fruit Flies Partner Practice CH 20 P #3,4 HW Review CH 18 Q#1, 4-7, 10-13

AGENDA Tues 1/19. QOD #5: Fruit Flies Partner Practice CH 20 P #3,4 HW Review CH 18 Q#1, 4-7, 10-13 AGENDA Tues 1/19 QOD #5: Fruit Flies Partner Practice CH 20 P #3,4 HW Review CH 18 Q#1, 4-7, 10-13 Macro Topic Selection: Intro to Team Teach HW: Read pp 472-482 Q#3,5,7 Parent Syllabus Review DUE: Mon

More information

ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3A

ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3A ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3A Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version A 2. For a firm with market power Marginal Revenue, while for a firm

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

More information

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures 8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,

More information

MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes

MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1 MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market might have a monopoly because: (1) a key resource is owned by a single firm; (2) the government gives a single firm the exclusive right

More information

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly ECON 202 Chapter 22 Pure Monopoly Pure Monopoly Exists when a single firm is the sole producer of a product for which there are no close substitutes. There are a number of products where the producers

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1

Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1 Part 1: Introduction to this course Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1 1. What is Industrial Organization? Industrial organization is concerned with

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Sample Test 3 Ch 10-13 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A cost incurred in the production of a good or service and for which

More information

Short run and long run price and output decisions of a monopoly firm,

Short run and long run price and output decisions of a monopoly firm, 1 Chapter 1-Theory of Monopoly Syllabus-Concept of imperfect competition, Short run and long run price and output decisions of a monopoly firm, Concept of a supply curve under monopoly, comparison of perfect

More information

Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis

Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis 1. The law of demand states that an increase in the price of a good: a. Increases the supply of that good. b.

More information

Chapter 25. Monopoly. Economics, 7th Edition Boyes/Melvin. Copyright Houghton Mifflin Company. All rights reserved. 25 1

Chapter 25. Monopoly. Economics, 7th Edition Boyes/Melvin. Copyright Houghton Mifflin Company. All rights reserved. 25 1 Chapter 25 Monopoly Economics, 7th Edition Boyes/Melvin Copyright Houghton Mifflin Company. All rights reserved. 25 1 What is a Monopoly? A monopoly is a market structure in which there is a single supplier

More information

1 of 23. Controlling Market Power: Antitrust and Regulation. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e.

1 of 23. Controlling Market Power: Antitrust and Regulation. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e. 1 of 23 2 of 23 In 1997, a U.S. court blocked the proposed merger of Staples and Office Depot, the nation s two largest office- supply retailers. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND

More information

Chapter 7: Market Structures Section 2

Chapter 7: Market Structures Section 2 Chapter 7: Market Structures Section 2 Objectives 1. Describe characteristics and give examples of a monopoly. 2. Describe how monopolies, including government monopolies, are formed. 3. Explain how a

More information

ECONOMICS OF REGULATION AND ANTITRUST Second Edition

ECONOMICS OF REGULATION AND ANTITRUST Second Edition ECONOMICS OF REGULATION AND ANTITRUST Second Edition W. Kip Viscusi John M. Vernon Joseph E. Harrington, Jr. The MIT Press Cambridge, Massachusetts London, England Contents Preface to the Second Edition

More information

Micro Chapter 10 study guide questions

Micro Chapter 10 study guide questions Micro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the competitive price searcher, a. price will exceed marginal

More information

Practice Test for Midterm 2 Econ Fall 2009 Instructor: Soojae Moon

Practice Test for Midterm 2 Econ Fall 2009 Instructor: Soojae Moon Practice Test for Midterm 2 Econ 2010-200 Fall 2009 Instructor: Soojae Moon Please read carefully and choose the choice that best completes the statement or answers the question. Table 7-2 This table refers

More information

Overview: Limiting Market Power

Overview: Limiting Market Power Overview: Limiting Market Power Introduction to Anti-trust Price Fixing Monopolization Predatory Pricing Tying and Extension of Monopoly Other Practices Common Property Resources 1 People of the same trade

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market. Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

More information

ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION

ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION Name Seat Assignment ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION November 17, 2009 FORM 3. Directions 1. FILL IN YOUR SCANTRON WITH YOUR UNIQUE ID AND THE FORM NUMBER LISTED ON THIS

More information

Chapter 15: Monopoly. Notes. Watanabe Econ Monopoly 1 / 83. Notes. Watanabe Econ Monopoly 2 / 83. Notes

Chapter 15: Monopoly. Notes. Watanabe Econ Monopoly 1 / 83. Notes. Watanabe Econ Monopoly 2 / 83. Notes Econ 3 Introduction to Economics: Micro Chapter : Monopoly Instructor: Hiroki Watanabe Spring 3 Watanabe Econ 93 Monopoly / 83 Monopolistic Market Monopolistic Pricing 3 Inefficiency of Monopoly Price

More information

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2015 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number

More information

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even Novermber 12, 2015 FORM 3 Directions 1. Fill in your scantron with your unique-id and the form number

More information

CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION

ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION Name Seat Assignment ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION November 17, 2009 FORM 1. Directions 1. FILL IN YOUR SCANTRON WITH YOUR UNIQUE ID AND THE FORM NUMBER LISTED ON THIS

More information

At P = $120, Q = 1,000, and marginal revenue is ,000 = $100

At P = $120, Q = 1,000, and marginal revenue is ,000 = $100 Microeconomics, monopoly, final exam practice problems (The attached PDF file has better formatting.) *Question 1.1: Marginal Revenue Assume the demand curve is linear.! At P = $100, total revenue is $200,000.!

More information

Carlton & Perloff Chapter 12 Vertical Integration and Vertical Restrictions. I. VERTICAL INTEGRATION AND VERTICAL RESTRICTIONS A. Vertical Integration

Carlton & Perloff Chapter 12 Vertical Integration and Vertical Restrictions. I. VERTICAL INTEGRATION AND VERTICAL RESTRICTIONS A. Vertical Integration I. VERTICAL INTEGRATION AND VERTICAL RESTRICTIONS A. Vertical Integration Carlton & Perloff II. 1. Operating at successive stages of production a. downstream: towards final consumers b. upstream: towards

More information

Introduction. Learning Objectives. Chapter 25. Monopoly

Introduction. Learning Objectives. Chapter 25. Monopoly Chapter 25 Monopoly Introduction Economists have found that when nations governments proclaim that a single church denomination represents the official state religion, the church loses attendance equal

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

JANUARY EXAMINATIONS 2008

JANUARY EXAMINATIONS 2008 No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

More information

AP Microeconomics Chapter 10 Outline

AP Microeconomics Chapter 10 Outline I. Learning Objectives In this chapter students should learn: A. How the long run differs from the short run in pure competition. B. Why profits encourage entry into a purely competitive industry and losses

More information

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

More information

2) All combinations of capital and labor along a given isoquant cost the same amount.

2) All combinations of capital and labor along a given isoquant cost the same amount. Micro Problem Set III WCC Fall 2014 A=True / B=False 15 Points 1) If MC is greater than AVC, AVC must be rising. 2) All combinations of capital and labor along a given isoquant cost the same amount. 3)

More information

7 The Optimum of Monopoly, Price Discrimination

7 The Optimum of Monopoly, Price Discrimination Microeconomics I - Lecture #7, March 31, 2009 7 The Optimum of Monopoly, Price Discrimination 7.1 Monopoly Up to now we have analyzed the behavior of a competitive industry, a market structure that is

More information

Objective: What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace?

Objective: What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? Perfect Competition Objective: What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? *Be sure to leave a couple blank lines under each question

More information

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture -29 Monopoly (Contd )

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture -29 Monopoly (Contd ) Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture -29 Monopoly (Contd ) In today s session, we will continue our discussion on monopoly.

More information