Question 1

Which two factors make regulating mergers complicated?

Accepted Answer

The answer of Which two factors make regulating mergers complicated?
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Question 2

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 3

Figure 15-7  Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.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

At the output level of Q₃ units, the marginal cost equals the marginal revenue. Therefore, this is the profit-maximizing output level. If the regulators allow the firm to break even on their investment, the firm will charge a price that equals its average total cost at this output level, which is P₃. Therefore, the answer is D: Q₃ units; P₃.

Question 4

Why are laws aimed at regulating monopolies called "antitrust" laws?

Accepted Answer

In the late 1800s, firms in several industries formed trusts, which were groups of independent companies that gave voting control to a board of trustees. These trusts became powerful monopolies that raised prices and limited competition. Antitrust laws were passed to regulate these trusts and prevent monopolies from forming. Therefore, laws aimed at regulating monopolies are called antitrust laws.

Question 5

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 established by the Department of Justice and the Federal Trade Commission in 1982 are market definition, measure of concentration, and merger standards. Market definition involves identifying the relevant geographic and product markets. The measure of concentration looks at the market share and concentration ratios of firms in these markets, and merger standards involve analyzing the potential impact of the merger on competition in the relevant markets.

Question 6

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. This is done to ensure that the natural monopoly does not charge excessively high prices and abuse its market power. The regulatory commissions determine the price that allows the natural monopoly to earn a reasonable rate of return while also taking into account the interests of consumers.

Question 7

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 formula for calculating the Herfindahl-Hirschman Index is summing up the squares of the market shares of all firms in the industry. Therefore, HHIndex = (0.5^2) + (0.2^2) + (0.1^2) + (0.1^2) + (0.05^2) + (0.05^2) = 0.25 + 0.04 + 0.01 + 0.01 + 0.0025 + 0.0025 = 0.301. According to the DOJ/FTC guidelines, an industry is considered highly concentrated when the HHIndex is between 0.18 and 1 (or 1,800 and 10,000 using percentages instead of decimals), and mildly concentrated when the index is between 0.10 and 0.18 (or 1,000 and 1,800 using percentages instead of decimals). Therefore, this industry with an HHIndex of 0.301 is highly concentrated. The best choice is B.

Question 8

The Clayton Act is an antitrust law that was passed to

Accepted Answer

The answer of The Clayton Act is an antitrust law...

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

Figure 15-7  Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.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 economically efficient output level is Q₄ units, and the price that will be charged is P₄. This is because at Q₄ units, the marginal cost of production is equal to the marginal benefit to consumers, which is the definition of economic efficiency.

Question 11

A horizontal merger

Accepted Answer

A horizontal merger is a merger between firms in the same industry. It involves the combination of two or more firms that produce similar goods or services, which compete against each other in the market. This kind of merger can often result in increased market power and decreased competition in the industry.

Question 12

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

Accepted Answer

The Clayton Act, enacted in 1914, prohibits firms from buying stock in competitors and from having directors serve on the boards of competing firms. This law was designed to supplement the Sherman Antitrust Act by targeting specific business practices that could lead to anti-competitive behavior. The Securities and Exchange Act primarily regulates securities markets, while the Robinson-Patman Act addresses pricing discrimination.

Question 13

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 is calculated by squaring the market shares of each firm in an industry and then adding up the values of the squares. This measure provides a more detailed analysis of industry concentration than the four-firm concentration ratio, which only considers the market shares of the four largest firms in the industry.

Question 14

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. Therefore, choice B is the best answer as it correctly identifies the range and the threshold for the HHI increase that may warrant a challenge.

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

The first important law regulating monopolies in the United States was

Accepted Answer

The first important law regulating monopolies in the United States was the Sherman Antitrust Act of 1890, which was designed to prevent and prohibit monopolies in commerce. The Clayton Antitrust Act and the Federal Trade Commission Act were later laws passed in 1914 that further enhanced the government's ability to regulate and break up monopolies. However, the Sherman Act was the first and most significant legislation aimed at promoting competition and preventing the concentration of economic power in the hands of a few large corporations.

Question 17

A merger between firms at different stages of production of a good

Accepted Answer

A merger between firms at different stages of production of a good is known as a vertical merger.

Question 18

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

Accepted Answer

A vertical merger occurs when a company acquires a business that is either upstream or downstream in its supply chain. In this case, Baxter International, the manufacturer, acquired American Hospital Supply, the distributor, which is downstream in its supply chain. Therefore, this acquisition is an example of a vertical merger.

Question 19

The U.S.Congress has given two government entities the authority to police mergers.These two entities are

Accepted Answer

The Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice have been given the authority to police mergers by the U.S. Congress.

Question 20

Figure 15-7  Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Accepted Answer

If a natural monopoly is required to produce at the economically efficient output level, which is where price equals marginal cost, the firm will not be able to cover its average total costs, leading to persistent losses.

Quiz 15: Monopoly and Antitrust Policy

Which two factors make regulating mergers complicated?

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?

Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-7.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 .

Why are laws aimed at regulating monopolies called "antitrust" laws?

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?

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?

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?

The Clayton Act is an antitrust law that was passed to

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?

A horizontal merger

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

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

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

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?

The first important law regulating monopolies in the United States was

A merger between firms at different stages of production of a good

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

The U.S.Congress has given two government entities the authority to police mergers.These two entities are

Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-7.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Quiz 15: Monopoly and Antitrust Policy

Which two factors make regulating mergers complicated?

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?

Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-7.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 ________.

Why are laws aimed at regulating monopolies called "antitrust" laws?

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?

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?

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?

The Clayton Act is an antitrust law that was passed to

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?

A horizontal merger

Which antitrust law prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms?

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

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

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?

The first important law regulating monopolies in the United States was

A merger between firms at different stages of production of a good

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

The U.S.Congress has given two government entities the authority to police mergers.These two entities are

Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-7.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly. -Refer to Figure 15-7.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 .