Regulation Quiz
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) Productive efficiency means that
1) _______
A) there are many firms in the market.
B) price is equal to marginal cost.
C) resources are employed in a way that minimizes total cost.
D) products are produced on an assembly line.
E) firms are innovating to create new products.
2) If the government intervenes in markets because industry prices exceed
marginal cost and there are deadweight losses, the government is acting
to promote
A) innovation.
B) technological efficiency.
C) research and development.
D) allocative efficiency.
E) productive efficiency.
2) _______
3) The natural structure of the market is the degree of competition that
A) maximizes productive efficiency.
B) encourages technological change.
C) maximizes allocative efficiency.
D) maximizes innovation.
E) would exist without intervention.
3) _______
4) The optimal structure of the market is the degree of competition that
A) would exist without intervention.
B) encourages technological change.
C) maximizes allocative efficiency.
D) maximizes innovation.
E) maximizes productive efficiency.
4) _______
Use the figure for the question(s) below.
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5) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is perfectly competitive, what is the value of
consumer surplus?
A) $20,000
B) $7,150
C) $25,000
D) $5,000
E) $13,125
5) _______
6) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is perfectly competitive, what is the value of
producer surplus?
A) $11,250
B) $25,000
C) $5,625
D) $2,200
E) $13,125
6) _______
7) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is perfectly competitive, what is the value of
consumer plus producer surplus?
A) $7,150
B) $20,500
C) $25,000
D) $4,500
E) $18,750
7) _______
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8) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is a monopoly, what is the value of consumer
surplus?
A) $5,000
B) $7,150
C) $20,000
D) $25,000
E) $13,125
8) _______
9) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is a monopoly, what is the value of producer
surplus?
A) $13,125
B) $25,000
C) $12,100
D) $20,000
E) $5,000
9) _______
10) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. If this industry is a monopoly, what is the size of the
deadweight loss?
A) $4,500
B) $1,700
C) $5,000
D) $20,500
E) $25,000
10) ______
11) The figure above shows demand for the widget industry. If this is a
perfectly competitive industry, the supply will be curve S. If this firm is
a monopoly, costs will be slightly lower, as represented by marginal cost
curve MC. Which of the following is NOT a true statement?
A) The size of the deadweight loss would be greater if the monopoly's
marginal costs were higher.
B) The monopoly output will be less than if this industry were
perfectly competitive.
C) If this industry is perfectly competitive, producer surplus will be
lower than if it were a monopoly.
D) If this industry is a monopoly, it will not be allocatively efficient.
E) Social welfare would be lower if this industry were perfectly
competitive.
11) ______
12) If there is more than one firm in the market, the
A) government will not need to intervene to promote allocative
efficiency.
B) government may need to intervene if firms collude.
12) ______
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C) government may need to intervene if firms do not cooperate with
each other.
D) market will be technologically efficient.
E) market will be highly competitive.
13) A product tie-in is
A) complementary products.
B) a requirement that products be purchased at the same time.
C) products that are promoted together.
D) products that are used to produce another product.
E) a requirement that the purchaser of one product buy another as
well.
13) ______
14) Setting a price below cost in order to drive a rival out of the industry is
called
A) monopoly pricing.
B) a price war.
C) competitive pricing.
D) cartel pricing.
E) predatory pricing.
14) ______
15) If a firm is a monopolist because it makes a better product that any other
firm could, this is likely to be
A) illegal under Section II of the Sherman Act.
B) illegal under Section I of the Sherman Act.
C) illegal under the Clayton Act.
D) illegal under the Robinson-Patman Act.
E) not illegal.
15) ______
16) Which of the following correctly describes the Department of Justice's
claim in the Microsoft case?
A) Microsoft tied sales of the Internet Explorer browser to sales of the
Windows operating system.
B) Microsoft tried to merge with other firms to restrict competition.
C) Microsoft created an illegal product, because the Windows
operating system has little competition.
D) Microsoft conspired to fixed prices, which is per se illegal.
E) All of the above were allegations by the Department of Justice.
16) ______
17) Globalization and technological change have reduced ________, and
thus antitrust enforcement has become ________.
A) advertising; less stringent
B) barriers to entry; less stringent
C) industry concentration; less stringent
D) industry concentration; more stringent
E) barriers to entry; more stringent
17) ______
18) Which of the following is not something that the Department of Justice
and the Federal Trade Commission can sue to accomplish?
A) Force firms to adopt new and more efficient technologies.
B) Break up existing firms into smaller ones.
C) Force firms violating antitrust laws to stop the illegal practices.
18) ______
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D) Impose fines on companies who violate antitrust laws.
E) Prevent the formation of very large firms.
19) At the present time, the government challenges mergers
A) only if the HHI is very small.
B) in all cases.
C) in price-fixing cases.
D) only if they substantially lessen competition.
E) only in the case of conglomerate mergers.
19) ______
20) The government is likely to regulate a monopoly rather than break it up
when
A) there is international competition.
B) the market is contestable.
C) firms have just merged.
D) there are significant economies of scale.
E) there is political pressure.
20) ______
21) AT&T was considered to be a natural monopoly because
A) there were health and safety issues involved in the provision of
phone service.
B) it is not possible to have more than one telephone company.
C) no other firm wanted to enter the telephone market.
D) it was the first firm to enter the market.
E) setting up a telephone network requires a great deal of capital.
21) ______
22) In the 1970s, demand for telephone service was inelastic because
A) there were barriers to entry.
B) there were no close substitutes.
C) the telephone industry was regulated.
D) there was a single firm in the market.
E) the regulatory board had been captured by the phone company.
22) ______
Use the
figure for
the
question(s
) below.
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23)
The figure above shows a natural monopoly. If the monopolist is
unregulated, what is the profit-maximizing output and price?
A) 500, $300
B) 400, $280
C) 800, $120
D) $100, 1000
E) 400, $400
23) ______
24) The figure above shows a natural monopoly. At the monopolist's profitmaximizing output and price, what is the size of the deadweight loss?
A) $200,000
B) $90,000
C) $2,000
D) $40,000
E) $0
24) ______
25) The figure above shows a natural monopoly. What is the socially
efficient output and price?
A) 800, $120
B) 400, $280
C) 400, $400
D) 500, $300
E) $100, 1000
25) ______
26) The figure above shows a natural monopoly. If regulators required the
monopolist to sell at the socially efficient output and price, which of the
following statements is TRUE?
A) The monopoly would be able to break even.
B) The monopolist would make a profit of less than zero.
C) There would still be a deadweight loss.
D) The result would not benefit consumers.
E) Firms would enter, and the industry would become competitive.
26) ______
27) The figure above shows a natural monopoly. If regulators set a price
cap, what would be the best price and output given that the firm must
break even?
A) 400, $400
B) $100, 1000
C) 500, $300
D) 800, $120
E) 400, $280
27) ______
28) The figure above shows a natural monopoly. If regulators choose an
average cost price cap, what will be the size of the deadweight loss?
A) $0
B) $2,000
C) $200,000
D) $40,000
E) $90,000
28) ______
29) Industries should generally be deregulated when
A) many consumers would benefit from deregulation.
29) ______
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B)
C)
D)
E)
most consumers would still be served in the deregulated market.
there are no significant health or safety concerns.
the private market structure would be more efficient.
All of the above are relevant factors in the decision to deregulate.
30) Which of the following is NOT a good reason to deregulate an industry?
A) The market would be more efficient if deregulated.
B) It is sometimes difficult to find an appropriate regulatory
structure.
C) Changes in technology have increased the number of substitutes.
D) There are no significant health and safety reasons to keep the
market regulated.
E) There are large economies of scale in the production of the good.
30) ______
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the
question.
31) Explain the difference between horizontal, vertical, and
31) _____________
conglomerate mergers.
32) What is the difference between per se illegality and the rule of
reason approach?
32) _____________
33) Is it illegal to be a monopoly?
33) _____________
34) Why is the Department of Justice generally more concerned
about horizontal mergers than
other types?
34) _____________
35) What is the difference between price cap and rate of return
regulation?
35) _____________
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