Question 1

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...

Question 2

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

If the market is broadly defined, there will be a larger pool of competitors and substitutes, reducing the likelihood that the merged entity will have significant market power. This makes it more likely for government approval of the merger. If the market is narrowly defined, there will be fewer competitors and substitutes, making it more likely that the merged entity will have significant market power and potentially harm competition.

Question 3

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 4

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 5

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...

Question 6

Figure 15-17  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 15-17. 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?
A) -$2,592,000
B) -$1,080,000
C) $0
D) $450,000

Accepted Answer

The answer of Figure 15-17  Your college decides to...

Question 7

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

Accepted Answer

Prices for natural monopolies are typically set by regulatory agencies, not the Department of Justice.

Question 8

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 9

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 10

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...

Question 11

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...

Question 12

Figure 15-17  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 15-17. 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?
A) $0
B) $40
C) $88
D) $150

Accepted Answer

To break even, the college should charge a price where the quantity demanded equals the quantity supplied, or where the marginal cost equals the marginal revenue. From the graph, we can see that the marginal cost is $88 at the quantity of 6000. At this quantity, the marginal revenue is also $88. Therefore, the price that the college should charge to break even is $88.

Question 13

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

While the U.S. government carefully scrutinizes proposed mergers that could significantly increase market power, it does not automatically reject them. Instead, it considers both the potential anticompetitive effects and procompetitive efficiencies of the merger before making a decision. If the efficiencies outweigh the anticompetitive effects, the merger may be approved.

Question 14

Figure 15-19 
-Refer to Figure 15-19 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 15-19 
-Refer to Figure 15-19 to...

Question 15

Figure 15-17  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 15-17. 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?
A) -$2,592,000
B) -$1,080,000
C) $0
D) $450,000

Accepted Answer

If the college charges a price that just breaks even, the quantity demanded will be 24,000, which is where the demand curve intersects the average cost curve. At this quantity, the total revenue will be $9 million and the total cost will also be $9 million, resulting in a profit of $0.

Question 16

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 17

Figure 15-18 
-Refer to Figure 15-18 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 15-18 
-Refer to Figure 15-18 to...

Question 18

Identify two ways by which the government controls monopolies?

Accepted Answer

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

Question 19

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...

Quiz 15: Monopoly and Antitrust Policy