Question 1

A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.

Accepted Answer

The answer of A vertical merger is one that takes...

Question 2

Baxter International,a manufacturer of hospital supplies,acquired American Hospital Supply,a distributor of hospital supplies.This is an example of

Accepted Answer

This is a vertical merger because Baxter International, the manufacturer, acquired American Hospital Supply, the distributor. The merger involves two companies within the same supply chain, but at different stages of the process. Baxter wanted to get into distribution by acquiring American Hospital Supply, rather than building its own distribution network from scratch.

Question 3

According to the Department of Justice merger guidelines,a proposed merger between two firms may be challenged if the post-merger Herfindahl-Hirschman Index

Accepted Answer

According to the Department of Justice merger guidelines, a proposed merger between two firms may be challenged if the post-merger Herfindahl-Hirschman Index (HHI) lies between 1,000 and 1,800 and the merger raises the Index by more than 100 points. Thus, option B is the correct choice as it satisfies both criteria. Option A is incorrect as the merger needs to raise the HHI by 50 points not just cross the threshold of the range; option C is incorrect as the HHI needs to be above 1,800 rather than between 1,000 and 1,800; option D is incorrect as the HHI needs to be below 1,000.

Question 4

A product's price approaches its marginal cost as market concentration increases.

Accepted Answer

The answer of A product's price approaches its marginal cost...

Question 5

Figure 10-16
  
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Accepted Answer

The answer of Figure 10-16
  
Figure 10-16 shows the...

Question 6

The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.

Accepted Answer

The statement is false. The government may approve a proposed merger if the efficiency gains from the newly merged firm could outweigh the potential harm to competition and benefit consumers. However, the government will assess the potential impact on market power and may require the newly merged firm to divest assets or take other corrective measures to preserve competition.

Question 7

Which two factors make regulating mergers complicated?

Accepted Answer

The factors that make regulating mergers complicated include the difficulty in determining what market the firms are in and the possibility that the merged firm may be more efficient than the merging firms were individually.

Question 8

Figure 10-16
  
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Accepted Answer

The answer of Figure 10-16
  
Figure 10-16 shows the...

Question 9

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Accepted Answer

The answer of Beginning in 1965,the head of the Antitrust...

Question 10

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%,Firm B - 20%,Firms C and D - 10% each,and Firms E and F - 5% each.What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated as the sum of squared market shares of all firms in the industry. In this case, HHI = (0.50)^2 + (0.20)^2 + (2*0.10)^2 + (2*0.05)^2 = 0.25 + 0.04 + 0.02 + 0.02 = 0.33. Multiplying by 10,000, we get an HHI value of 3,300, which falls in the range of 2,500 to 3,000, which is considered highly concentrated according to the Department of Justice and Federal Trade Commission guidelines. Therefore, choice B is the correct answer.

Question 11

If a firm is a natural monopoly,competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit.How are prices usually set in natural monopoly markets in the United States?

Accepted Answer

Local or state regulatory commissions usually set prices for natural monopolies in the United States through rate-of-return regulation. These commissions determine what is a reasonable rate of return on investment for the natural monopoly and allow them to charge prices that will earn them that rate of return while still providing the required services.

Question 12

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.

Accepted Answer

This is because a broader market definition would indicate that there are more substitutes available in the market, thereby reducing the likelihood of a merger leading to a dominant market position. On the other hand, a narrower market definition would indicate a higher level of concentration in the market, potentially leading to anti-competitive effects.

Question 13

Figure 10-16
  
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to figure 10-16.In the absence of any government regulation,the profit-maximizing owners of this firm will produce ________ units and charge a price of ________.

Accepted Answer

The profit maximizing output is determined at the intersection of marginal revenue (MR) and marginal cost (MC) curves. In this case, the intersection point is Q1, where MR=MC. At this output level, the monopolist will charge the price corresponding to the point on the demand curve above Q1, which is P1. Therefore, the answer is B, Q1 units; P1.

Question 14

Figure 10-16
  
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

Accepted Answer

The answer of Figure 10-16
  
Figure 10-16 shows the...

Question 15

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed.Which of the following statements regarding the value of the Index for a given industry is true?

Accepted Answer

The answer of The Herfindahl-Hirschman Index is one factor used...

Question 16

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

Accepted Answer

The answer of Congress has divided the authority to police...

Question 17

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

Accepted Answer

The answer of Merger guidelines developed by the Antitrust Division...

Question 18

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Accepted Answer

The three main parts of the merger guidelines developed by economists in 1982 are market definition, measure of concentration, and merger standards. Market definition involves delineating the relevant product and geographic markets affected by the merger. The measure of concentration includes tools such as the Herfindahl-Hirschman Index to quantify market concentration. Finally, the merger standards provide guidance on when a merger may harm competition and what remedies may be appropriate.

Question 19

Merger guidelines developed by the U.S.Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration.This index measures concentration in an industry by

Accepted Answer

The Herfindahl-Hirschman Index measures concentration in an industry by squaring the market shares of each firm in the industry and then adding up the values of the squares. This provides a more granular measure of concentration than the four-firm concentration ratio, which only looks at the market shares of the four largest firms in the industry. Additionally, the HHI includes all firms in the industry, not just those based in the United States, which makes it a more accurate picture of concentration in the global economy.

Question 20

A horizontal merger

Accepted Answer

A horizontal merger is a merger between firms in the same industry. This type of merger involves companies that are direct competitors and often leads to a decrease in competition within the industry.

Quiz 10: Monopoly and Antitrust Policy

A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.

Baxter International,a manufacturer of hospital supplies,acquired American Hospital Supply,a distributor of hospital supplies.This is an example of

According to the Department of Justice merger guidelines,a proposed merger between two firms may be challenged if the post-merger Herfindahl-Hirschman Index

A product's price approaches its marginal cost as market concentration increases.

The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.

Which two factors make regulating mergers complicated?

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 10-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%,Firm B - 20%,Firms C and D - 10% each,and Firms E and F - 5% each.What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

If a firm is a natural monopoly,competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit.How are prices usually set in natural monopoly markets in the United States?

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to figure 10-16.In the absence of any government regulation,the profit-maximizing owners of this firm will produce units and charge a price of .

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 10-16.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of and charge a price of .

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed.Which of the following statements regarding the value of the Index for a given industry is true?

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

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

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Merger guidelines developed by the U.S.Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration.This index measures concentration in an industry by

A horizontal merger

Quiz 10: Monopoly and Antitrust Policy

A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.

Baxter International,a manufacturer of hospital supplies,acquired American Hospital Supply,a distributor of hospital supplies.This is an example of

According to the Department of Justice merger guidelines,a proposed merger between two firms may be challenged if the post-merger Herfindahl-Hirschman Index

A product's price approaches its marginal cost as market concentration increases.

The U.S.government would never approve a proposed merger between two firms that could significantly increase the newly merged firm's market power even if the efficiency gains from the newly merged firm could make consumers better off.

Which two factors make regulating mergers complicated?

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 10-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Beginning in 1965,the head of the Antitrust Division of the U.S.Department of Justice began to change antitrust policy.How did antitrust policy change?

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%,Firm B - 20%,Firms C and D - 10% each,and Firms E and F - 5% each.What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

If a firm is a natural monopoly,competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit.How are prices usually set in natural monopoly markets in the United States?

Holding everything else constant,government approval of horizontal mergers is more likely to be granted if the "market" that firms are in are broadly defined rather than narrowly defined.

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to figure 10-16.In the absence of any government regulation,the profit-maximizing owners of this firm will produce ________ units and charge a price of ________.

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 10-16.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed.Which of the following statements regarding the value of the Index for a given industry is true?

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

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

Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982.These guidelines have three main parts.What are these parts?

Merger guidelines developed by the U.S.Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration.This index measures concentration in an industry by

A horizontal merger

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to figure 10-16.In the absence of any government regulation,the profit-maximizing owners of this firm will produce units and charge a price of .

Figure 10-16 Figure 10-16 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 10-16.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of and charge a price of .