Question 1

Consider two industries,industry Q and industry Z.In industry Q there are 10 companies,each with a market share of 10% of total sales.In industry Z,there are eight companies.One company has a 65% market share and each of the other seven firms has a market share of 5%.
a.Calculate the four-firm concentration ratio for each industry.
b.Calculate the Herfindahl-Hirschman Index (HHI)for each industry.

Accepted Answer

The answer of Consider two industries,industry Q and industry Z.In...

Question 2

Figure 10-17
  Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 10-17.The dean of the college argues: "I think the course should be priced to maximize the profit the college earns,so these funds can be used to pay some other expenses." How much profit (or loss)will the college make on the course if it charges this price?

Accepted Answer

The college will make a profit of $450,000 if it charges the price that maximizes profit, as indicated in the options provided.

Question 3

Figure 10-19
 
-Refer to Figure 10-19 to answer the following questions.
a.What quantity will this monopoly produce and what price will it charge?
b.Suppose the monopoly is regulated.If the regulatory agency wants to achieve economic efficiency,what price should it require the monopoly to charge?
c.To achieve economic efficiency,what quantity will the regulated monopoly produce?
d.Will the regulated monopoly make a profit if it charges the price that will achieve economic efficiency?
e.Suppose the government decides to regulate the monopoly by imposing a price ceiling of $35.What quantity will the monopoly produce and what price will the monopoly charge?
f.With the price ceiling of $35,what profit will the monopoly earn?

Accepted Answer

The answer of Figure 10-19
 
-Refer to Figure 10-19 to...

Question 4

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

When the market is narrowly defined, a horizontal merger can result in a higher market share for the merged entity and potentially lead to anticompetitive behavior. However, if the market is broadly defined, the merged entity's market share may be lower and the merger may not result in anticompetitive behavior, making it more likely for government approval to be granted.

Question 5

a.What is the defining characteristic of a natural monopoly?
b.Should the government break up a natural monopoly into two or more firms to make the industry more competitive?
c.Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to consumers.To achieve this goal,it requires that the natural monopoly set its price equal to marginal cost.Is this a feasible goal? Explain.
d.What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining average total cost?

Accepted Answer

The answer of a.What is the defining characteristic of a...

Question 6

The term "trust" in antitrust refers to a board of trustees that has collusive control over different companies.

Accepted Answer

The answer of The term "trust" in antitrust refers to...

Question 7

Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal revenue equals marginal cost.

Accepted Answer

The answer of Economic efficiency requires that a natural monopoly's...

Question 8

Local or state offices of the Department of Justice usually set prices for natural monopolies in their jurisdictions.

Accepted Answer

Local or state offices may regulate natural monopolies, but they typically do not set prices. Pricing is usually determined by the monopolistic company or through regulatory agencies such as the Federal Energy Regulatory Commission or the Federal Communications Commission.

Question 9

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 10

Identify the type of merger in each of the following situations and indicate how the post-merger concentration ratio for the industry is affected.
a.A steel company merges with a coal and iron ore mining company.b.Staples,a retailer of office supplies,acquires Office Depot,another retailer of office supplies.c.An oil company merges with pipeline,shipping,and railroad companies as well as refineries and gas stations.

Accepted Answer

The answer of Identify the type of merger in each...

Question 11

a.What is the difference between a horizontal merger and a vertical merger?
b.Which type of merger,horizontal or vertical,would the government be most concerned with? Why?
c.Could a horizontal merger be welfare improving?

Accepted Answer

The answer of a.What is the difference between a horizontal...

Question 12

Figure 10-17
  Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 10-17.You are a member of a student government and are asked to recommend a price for the course and you argue: "I think the college should charge a price so that it just breaks even on the course." How much profit (or loss)will the college make on the course if it charges this price?

Accepted Answer

If the college charges a price where it just breaks even, the quantity demanded is 36,000 and the total cost is also $3,600,000. Therefore, the total revenue is also equal to $3,600,000 which means the college will not make any profit or loss.

Question 13

Figure 10-18
 
-Refer to Figure 10-18 to answer the following questions.
a.What quantity will this monopoly produce and what price will it charge?
b.Suppose the government decides to regulate this monopoly and imposes a price ceiling of $25.Now what quantity will the monopoly produce and what price will it charge?
c.Will every consumer who is willing to pay the ceiling price of $25 be able to buy the product? Briefly explain.

Accepted Answer

The answer of Figure 10-18
 
-Refer to Figure 10-18 to...

Question 14

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

This statement is not entirely true. The U.S. government considers both potential antitrust concerns and potential efficiency gains when evaluating proposed mergers. While the government may be hesitant to approve a merger if it could lead to significant market power for the newly merged firm, it will also consider if the efficiency gains from the merger could outweigh any potential harm to competition.

Question 15

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

Accepted Answer

A vertical merger takes place between two companies involved in different stages of the production process for a particular product. They may produce different goods or services that ultimately come together to make the finished product.

Question 16

Identify two ways by which the government controls monopolies?

Accepted Answer

The answer of Identify two ways by which the government...

Question 17

Figure 10-17
  Your college decides to offer a psychology course as a MOOC that can be taken by students anywhere in the world, whether they are actually enrolled in your college or not. The demand and cost situation for the MOOC is shown in the figure.
-Refer to Figure 10-17.You are a member of a student government and are asked to recommend a price for the course and you argue: "I think the college should charge a price so that it just breaks even on the course." What price should you recommend?

Accepted Answer

At the point where the demand curve intersects with the average total cost curve, the college would be breaking even on the course. This occurs at a price of $88, which is the recommended price. At a price of $0, the college would not generate any revenue and would not be able to cover the costs of offering the course. At prices above $88, the demand for the course decreases, and the college would not be able to cover its costs. Therefore, the best choice is to recommend a price of $88 to break even.

Question 18

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 19

Consider two industries,industry W and industry X.In industry W there are five companies,each with a market share of 20% of total sales.In industry X,there are six companies.One company has a 50% market share and each of the other five firms has a market share of 10%.
a.Calculate the four-firm concentration ratio for each industry.
b.Calculate the Herfindahl-Hirschman Index (HHI)for each industry.
c.What do the values of the two concentration measures imply about the degree of market power in the two industries?

Accepted Answer

The answer of Consider two industries,industry W and industry X.In...

Quiz 10: Monopoly and Antitrust Policy