Question 1

Suppose the transportation industry has been regulated for many years. Government now proposes to deregulate the industry, only to find that firms in the industry oppose this action. This is consistent with the

Accepted Answer

The legal cartel theory of regulation states that industries can create a regulated environment that acts like a cartel, allowing firms to restrict competition and increase profits. In this scenario, the firms in the transportation industry may oppose deregulation because they benefit from the current regulatory environment, which limits competition and allows them to set higher prices.

Question 2

Critics of the regulation of natural monopolies contend that

Accepted Answer

Critics of regulation of natural monopolies argue that the regulatory commission may become too closely aligned with the industry it is regulating, leading to capture or control by the industry. This can result in regulatory decisions that benefit the industry rather than consumers.

Question 3

Critics of industrial regulation say that such regulation

Accepted Answer

Industrial regulation is aimed at regulating industries that exhibit natural monopolies to promote competition, protect consumers, and promote efficiency. However, critics argue that regulation could perpetuate monopolies long after new technology has eroded the natural monopoly. This is because regulation allows existing firms to maintain their dominant position by setting entry barriers that prevent new firms from entering the market. This undermines the competitive market's ability to allocate resources efficiently and protect consumers from exploitation.

Question 4

Which of the following is characteristic of a regulated natural monopoly?

Accepted Answer

Extensive economies of scale make it difficult and costly for new firms to enter the market and compete with the existing monopolist. This, in turn, necessitates regulation to prevent the wasteful duplication of capital facilities. Regulated natural monopolies provide essential services, such as water and electricity, which are necessary for consumers to carry out their daily activities. Therefore, all three characteristics mentioned in the options are typical of regulated natural monopolies.

Question 5

The view that the antitrust laws should be enforced relatively leniently because of the tendency for monopoly power to erode over time is known as the

Accepted Answer

The laissez-faire perspective on antitrust holds that markets are self-regulating and that government intervention in the economy should be limited. This view suggests that the antitrust laws should be enforced relatively leniently because monopolies tend to erode over time without government intervention.

Question 6

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

Accepted Answer

The answer of The view that the antitrust laws need...

Question 7

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Accepted Answer

The Federal Communications Commission is primarily concerned with industrial regulation, specifically in the areas of telecommunications and media. The Occupational Safety and Health Administration and the Environmental Protection Agency are both examples of social regulation, as they focus on protecting the health and safety of workers and the environment, respectively. The Consumer Products Safety Commission is also a form of social regulation, as it is responsible for ensuring the safety of consumer products.

Question 8

Using antitrust law to split up an unregulated natural monopoly into several competing firms

Accepted Answer

Splitting up a natural monopoly into several competing firms may create inefficiencies and increased costs associated with duplication of infrastructure and equipment. However, competition typically leads to lower prices as firms strive to attract customers with lower prices and higher quality products. Therefore, it is possible that the outcome of splitting up a natural monopoly could either lead to lower or higher product prices depending on how the market adjusts to increased competition.

Question 9

The legal cartel theory of regulation argues that

Accepted Answer

The legal cartel theory of regulation argues that firms in certain industries want to be regulated rather than face the rigors of competition. This is because regulation helps limit the number of firms in a market and allows them to collude on prices and other business practices. This creates a legal "cartel" that benefits the industry by limiting competition and increasing profits for the firms involved.

Question 10

Where there is natural monopoly, government is most likely to implement

Accepted Answer

Industrial regulation is the most likely policy to be implemented by the government in a scenario where there is a natural monopoly. This type of regulation is aimed at controlling the prices charged by the monopolist, ensuring fair access to the market, and maintaining quality of service or product. Antitrust policies are not applicable since natural monopolies have no competitors. Social regulation is not relevant in this context as it deals with issues such as health and safety, and environmental standards. An externality containment policy is also not applicable as it is aimed at addressing external costs or benefits associated with production or consumption activities.

Question 11

The public interest theory of industrial regulation contends that

Accepted Answer

The public interest theory of industrial regulation suggests that the objective of regulation is to protect the public interest from the market power that natural monopolies hold. This means that regulation aims to ensure that natural monopolies do not abuse their market power and charge excessive prices, while also promoting fair competition in the market. This theory recognizes that regulation is necessary to correct market failures that lead to insufficient competition and consumer welfare.

Question 12

A major criticism of industrial regulation is that

Accepted Answer

One major criticism of industrial regulation is that by allowing natural monopolists to receive a fair return price, there is little incentive for them to contain costs. This can lead to higher prices for consumers and an inefficient use of resources. Marginal cost pricing (choice B) is actually a method of regulation that encourages efficiency by setting prices based on the cost of production. Choice A is not a criticism, but rather a description of how industrial regulation has been applied. Choice D is also not a common criticism, as regulatory commissions are meant to prevent natural monopolies from going bankrupt by ensuring they receive a fair return on investment.

Question 13

The main purpose of industrial regulation is to

Accepted Answer

The main purpose of industrial regulation is to ensure that firms operate in an efficient and fair manner. This can include setting prices that allow for a fair return on investment, regulating monopolies to promote competition, and reducing X-inefficiency (inefficiency caused by factors other than market competition). Choice B aligns with this goal, as it aims to set prices that allow firms to cover their costs while also promoting competition and efficiency.

Question 14

All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the

Accepted Answer

The Food and Drug Administration (FDA) is a regulatory commission dealing with social regulation, specifically the regulation of food, drugs, cosmetics, and medical devices. The other options listed deal with industrial regulation, such as the regulation of energy, telecommunications, and public utilities.

Question 15

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely

Accepted Answer

The U.S. Justice Department typically considers a market with a Herfindahl index below 1,500 to be unconcentrated. An increase of 50 points in such a market is generally not significant enough to warrant blocking the merger.

Question 16

Economists who adhere to the laissez-faire antitrust perspective

Accepted Answer

Economists who adhere to the laissez-faire antitrust perspective believe in the importance of competition as a long-run dynamic process. They argue that although firms may initially achieve dominance, they are rarely able to sustain it. This belief is in contrast to those who support the antitrust laws, who view market dominance as a persistent problem that requires government intervention to solve.

Question 17

A firm is likely to be a natural monopoly

Accepted Answer

A natural monopoly occurs when a single firm can produce the entire output of the market at a lower cost than any potential competitor. This is usually due to economies of scale, which occur when the average cost of production decreases as output increases. Therefore, the correct choice is C as it states that economies of scale are experienced over the full range of output. Choices A, B, and D do not accurately describe the conditions for a natural monopoly.

Question 18

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

Accepted Answer

A natural monopoly occurs when a single firm can produce output and supply the entire market demand at a lower cost than any potential competitor. This is often due to high fixed costs, making it difficult for new firms to enter the market without incurring significant costs themselves.

Question 19

Critics of industrial regulation say that such regulation

Accepted Answer

Critics of industrial regulation argue that regulations often result in higher costs for businesses, which they pass on to consumers in the form of higher prices. This can lead to X-inefficiency, where firms are not operating at the lowest cost possible. X-inefficiency is a type of inefficiency that occurs when a firm is producing at a higher cost than is necessary to produce the same output.

Question 20

Overall, economists believe that deregulation of industries formerly subjected to industrial regulation

Accepted Answer

Economists generally believe that deregulation has produced large net benefits for consumers and society. This is because deregulation has led to increased competition, reduced prices, and improved efficiency in many industries, including telecommunications, banking, and energy. While there have been some negative consequences of deregulation, such as job losses and increased market concentration, overall the evidence suggests that deregulation has been beneficial.

Quiz 21: Antitrust Policy and Regulation

Suppose the transportation industry has been regulated for many years. Government now proposes to deregulate the industry, only to find that firms in the industry oppose this action. This is consistent with the

Critics of the regulation of natural monopolies contend that

Critics of industrial regulation say that such regulation

Which of the following is characteristic of a regulated natural monopoly?

The view that the antitrust laws should be enforced relatively leniently because of the tendency for monopoly power to erode over time is known as the

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

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Using antitrust law to split up an unregulated natural monopoly into several competing firms

The legal cartel theory of regulation argues that

Where there is natural monopoly, government is most likely to implement

The public interest theory of industrial regulation contends that

A major criticism of industrial regulation is that

The main purpose of industrial regulation is to

All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely

Economists who adhere to the laissez-faire antitrust perspective

A firm is likely to be a natural monopoly

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

Critics of industrial regulation say that such regulation

Overall, economists believe that deregulation of industries formerly subjected to industrial regulation