Ch. 18 Practice MC
1.
The Sherman Act was designed to:
A. exempt commercial banks from the antitrust laws.
B. make interlocking directorates legal.
C. prohibit misleading and antisocial advertising.
D. make monopoly and acts that restrain trade illegal.
2.
Which of the following gave the Federal Trade Commission responsibility to protect the public against
false and misleading advertising?
A. Celler-Kefauver Act of 1950
B. Wheeler-Lea Act of 1938
C. Clayton Act of 1914
D. Sherman Act of 1890
3.
The Celler-Kefauver Act of 1950:
A. modified patent legislation by reducing the number of years over which a patent is applicable.
B. prohibited any firm from acquiring the real assets of another firm where the effect was to lessen
competition.
C. declared all conglomerate mergers to be illegal.
D. prohibited any firm from buying the stock of another firm where the effect was to lessen competition.
4.
The Sherman Act:
A. was declared unconstitutional in 1895.
B. provided for government regulation of the railroads.
C. declared monopoly and restraints of trade to be illegal.
D. exempted the railroad and communications industries from the antitrust laws.
5.
The main purpose of the antitrust laws is:
A. to encourage firms to produce where P > MC.
B. the elimination of both negative and positive externalities.
C. to prevent the monopolization of industries.
D. to regulate natural monopolies.
6.
Interlocking directorates are:
A. legal if the two firms have small market shares.
B. illegal under provisions of the Federal Trade Commission Act of 1914.
C. illegal under provisions of the Celler-Kefauver Act of 1950.
D. illegal under provisions of the Clayton Act of 1914.
7.
The government was successful in gaining an antitrust conviction in the:
A. U.S. Steel case.
B. IBM case.
C. Alcoa case.
D. DuPont cellophane case.
8.
In which of the following cases did the final court decision result in a breakup of the firm into competing
businesses?
A. Microsoft case
B. Standard Oil case
C. U.S. Steel case
D. DuPont cellophane case
9.
In which of the following cases was the firm found not guilty of violating the Sherman Act?
A. Standard Oil case
B. Microsoft case
C. Alcoa case
D. DuPont cellophane case
10. In which of the following pairs of antitrust cases did the firms prevail against the antitrust charges leveled
against them?
A. the Alcoa case and the Microsoft case
B. the U.S. Steel case and the Alcoa case
C. the DuPont cellophane case and the U.S. Steel Case
D. the U.S. Steel case and the Microsoft Case
11. The "rule of reason" indicated that:
A. if less than four firms account for three-fourths of an industry's sales, the industry is in violation of the
Sherman Act.
B. social regulation should not be enforced unreasonably so that costs exceed benefits.
C. the mere possession of monopoly power is a violation of the antitrust laws.
D. only contracts and combinations that unreasonably restrain trade violate the antitrust laws.
12. In the Alcoa case of 1945 the courts held that:
A. the mere possession of monopoly power is a violation of the antitrust laws.
B. only contracts and combinations that unreasonably restrain trade are in violation of the Sherman Act.
C. retail and wholesale firms are exempt from antitrust legislation.
D. firms which sell more than one-half of their output overseas are exempt from antitrust.
13. Suppose a court rules that the ABC Corporation is in violation of the antitrust laws because it produces 70
percent of the output of its industry. This decision is consistent with the:
A. U.S. Steel case.
B. Alcoa case.
C. behavioralist approach to antitrust.
D. legal cartel theory of regulation.
14. The decision in the U.S. Steel case:
A. reflected a behavioralist approach to antitrust.
B. reflected a structuralist approach to antitrust.
C. divided U.S. Steel into a number of smaller companies.
D. ruled that U.S. Steel had engaged in illegal price fixing.
15. Which of the following is most likely to increase the Herfindahl Index of a particular industry?
A. a horizontal merger between two of the industry's largest firms.
B. a vertical merger between one of an industry's largest firms and one of the many input suppliers in the
resource market.
C. a conglomerate merger involving one of the industry's major firms.
D. an agreement by all the industry firms to divide up the market among them.
16. A merger between an automobile manufacturer and a maker of automobile tires is an example of a:
A. conglomerate merger.
B. horizontal merger.
C. vertical merger.
D. tying contract.
17. A conglomerate merger:
A. can extend the line of products sold, extend the territories in which products are sold, or combine
totally unrelated products.
B. is defined as a merger involving two firms that previously had a buyer-seller relationship.
C is defined as a merger involving two firms producing the same or similar products and selling them in
. the same geographical market.
D. is illegal, per se.
18. Structuralists take the position that:
A. the rule of reason is appropriate and desirable in interpreting the Sherman Act.
B. only unreasonable anticompetitive acts should be regarded as violations of the antitrust laws.
C. industries should be judged on the basis of their technological progress and their price-output behavior.
D. an industry that is highly concentrated will behave monopolistically.
19. A firm charged with monopolizing a market is less likely to be convicted if:
A. the court accepts a broad definition of the market.
B. the court accepts a narrow definition of the market.
C. it has gained its monopoly through abusive means.
D. it sells its product to other firms, rather than directly to consumers.
20. Price fixing is considered to be a per se violation of the antitrust laws because:
A. a guilty verdict requires proof of injury to consumers.
B. a guilty verdict requires proof of injury to other competitors.
C. the rule of reason is applicable.
D. a guilty verdict requires proof that the activity was attempted, not that it unreasonably restrained trade.
21. Which of the following is correct?
A. Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers.
B. A vertical merger entails the merging of two or more competing firms.
C. Horizontal mergers are more likely to be acceptable under antitrust laws than are vertical mergers.
D. Conglomerate mergers occur when two or more firms at various stages in a good's production are
combined.
22. Which one of the following is not correct?
A. In antitrust cases defendants attempt to define the relevant market broadly.
B. The courts have varied over time in their interpretations of the antitrust statutes.
C. Antitrust suits can only be originated by the Federal Trade Commission.
D. In antitrust cases the prosecution attempts to define the relevant market narrowly.
Answer the question on the basis of the following table showing market shares of firms in hypothetical
industries. Assume these are distinct industries with no buyer-seller relationships or competition among
them.
23. Refer to the above table. The industry with the greatest market power as measured by the Herfindahl
index is:
A. Alpha.
B. Beta.
C. Cappa.
D. Delta.
24. Refer to the above table. A merger between Firm 2 and Firm 3 in Alpha would be a:
A. vertical merger.
B. horizontal merger.
C. diagonal merger.
D. conglomerate merger.
25. Refer to the above table. A merger between Firm 1 in Alpha and Firm 2 in Delta would be a:
A. vertical merger.
B. horizontal merger.
C. conglomerate merger.
D. diagonal merger.
26. Refer to the above table. The government would likely challenge a merger between:
A. Firm 1 in Alpha and Firm 6 in Delta.
B. Firms 3 and 4 in Beta.
C. Firms 1 and 2 in Cappa.
D. Firm 4 in Alpha and Firm 3 in Cappa.
27. Refer to the above table. A structuralist would most likely assert that there is a violation of antitrust law
in which industry?
A. Alpha.
B. Beta.
C. Cappa.
D. Delta.
28. Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent,
respectively. The Herfindahl index for the industry is:
A. 1,900.
B. 2,400.
C. 90.
D. 10,000.
29. Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S.
Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most
likely:
A. ignore this merger because of the relatively small increase in the Herfindahl index.
B. allow the merger but watch the new firm carefully for future violations of the antitrust laws.
C. allow the merger if foreign entry to the industry is possible.
D. prevent the merger, contending that it violates the Clayton Act.
30. The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors,
monopolization of markets, and allocative inefficiency is known as the:
A. structuralist view of antitrust.
B. behavioralist view of antitrust.
C. laissez-faire perspective on antitrust.
D. active antitrust perspective.
31. Using antitrust law to split up an unregulated natural monopoly into several competing firms:
A. would reduce product price.
B. would increase product price.
C. might either increase product price or reduce product price.
D. will reduce average total cost.
32. Critics of the regulation of natural monopolies contend that:
A. regulation increases the incentive of firms to lower costs.
B. regulated firms may use creative accounting to reduce costs, prices, and profits.
C. when rates of return are based on the value of real capital, an uneconomic substitution of labor for
capital may occur.
D. the industry may "capture" or control the regulatory commission.
33. A market in which the entire demand for a good or service can be satisfied at the least cost by a single
firm is a:
A. horizontal market.
B. natural monopoly.
C. contestable market.
D. perfect market.
34. Which one of the following is concerned with industrial regulation, as distinct from social regulation?
A. Occupational Safety and Health Administration
B. Consumer Products Safety Commission
C. Federal Communications Commission
D. Environmental Protection Agency
35. The main purpose of industrial regulation is to:
A. lower price to marginal cost.
B. lower price to average total cost such that the firm earns a fair return.
C. break monopolies into competing firms.
D. reduce X-inefficiency.
36. Critics of industrial regulation say that such regulation:
A. contributes to X-inefficiency.
B. benefits small firms at the expense of large firms.
C. creates insurmountable principal-agent problems.
D. suffers from the free-rider problem.
37. The largest efficiency gains from deregulation have occurred in the:
A. natural gas and cable television industries.
B. cable television and railroad industries.
C. communications and stockbrokering industries.
D. airlines, trucking, and railroad industries.
38. Social, as distinct from industrial, regulation is the major focus of the:
A. Federal Trade Commission.
B. Federal Energy Regulatory Commission.
C. Federal Communications Commission.
D. Consumer Products Safety Commission.
39. Defenders of social regulation point out that:
A. social regulation is a better alternative than unregulated natural monopoly.
B critics who stress the high administrative and compliance costs of social regulation underestimate the
. social benefits that the regulations produce.
C. the number of regulatory agencies has declined over the past two decades.
D. social regulations reduce product prices.
40. Social regulation differs from industrial regulation in that:
A. social regulation applies to virtually all industries, while industrial regulation applies to a restricted
number.
B. industrial regulation is involved in the details of the production process, while social regulation is not.
C. social regulation has expanded less rapidly in recent years than has industrial regulation.
D. industrial regulation regulates products whereas social regulation regulates prices.
41. Which one of the following is concerned with social regulation?
A. Equal Employment Opportunity Commission
B. Federal Communications Commission
C. Sherman Commission
D. Federal Energy Regulatory Commission
42. (Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists
examples of recent antitrust cases involving:
A. monopolization.
B. tying contracts.
C. price fixing.
D. horizontal mergers.
43. (Consider This) According to the Consider This box on catfish and art, which of the following airlines in
2007 agreed to pay $300 million fines for fixing fuel surcharges on passenger tickets and cargo?
A. Korean Air and British Airlines
B. Qantas and Lufthansa
C. United Airlines and American Airlines
D. Virgin Atlantic and Aeroflot
44. (Last Word) In 2001, Microsoft was found guilty of:
A.using anticompetitive means to maintain and broaden its monopoly in Intel-compatible operating
systems for personal computers.
B. monopolizing the market for word processing software.
C. conspiring with Netscape and Sun to monopolize the market for Internet browsers.
D deliberately pricing Windows 95 and 98 below marginal cost to monopolize the market for operating
. systems for personal computers.
45. (Last Word) The final settlement of the United States v. Microsoft case:
Arequires that Microsoft provide technical information to competing companies so they can develop
. software programs that work as well with Windows as Microsoft's own products.
B. broke up Microsoft into two competing firms.
C. found Microsoft not guilty of violating the Sherman Act.
D. forced Microsoft to sell off its major applications programs such as Word and PowerPoint.
46. Price fixing is illegal under Section 1 of the Sherman Act.
True False
47. Anticompetitive mergers are illegal under provisions of the Clayton Act (as amended).
True False
48. Proposed ergonomics regulations are an example of industrial regulation (rather than social
regulation).
True False
49. Tying agreements are contracts by which retailers agree to charge the prices that manufacturers set on
branded goods.
True False
50. The Americans with Disabilities Act of 1990 is an example of industrial regulation.
True False
Ch. 18 Practice MC Key
1. D
2. B
3. B
4. C
5. C
6. D
7. C
8. B
9. D
10. C
11. D
12. A
13. B
14. A
15. A
16. C
17. A
18. D
19. A
20. D
21. A
22. C
23. B
24. B
25. C
26. C
27. B
28. B
29. D
30. D
31. C
32. D
33. B
34. C
35. B
36. A
37. D
38. D
39. B
40. A
41. A
42. C
43. A
44. A
45. A
46. TRUE
47. TRUE
48. FALSE
49. FALSE
50. FALSE
Ch. 18 Practice MC Summary
Category
AACSB: Analytic
AACSB: Reflective Thinking
Bloom's: Level 1 Remember
Bloom's: Level 2 Understand
Bloom's: Level 3 Apply
Bloom's: Level 4 Analyze
Difficulty: 1 Easy
Difficulty: 2 Medium
Difficulty: 3 Hard
Learning Objective: 18-01 List and explain the core elements of the major antitrust (antimonopoly) laws in the United States.
Learning Objective: 18-02 Describe some of the key issues relating to the interpretation and application of antitrust laws.
Learning Objective: 1803 Identify and explain the economic principles and difficulties relating to the setting of prices (rates) charged by socalled natural monopolies.
Learning Objective: 18-04 Discuss the nature of "social regulation;" its benefits and costs; and its optimal level.
McConnell - Chapter 18
Status: New
Topic: Antitrust laws
Topic: Antitrust policy: issues and impacts
Topic: Deregulation
Topic: Industrial regulation
Topic: Social regulation
Type: Table
# of Questions
13
37
20
9
20
1
20
29
1
11
26
6
7
51
3
8
29
1
6
6
5