ECON EXAM 3

The antitrust laws are enforced by

the Department of Justice, the Federal Trade Commission, and state attorney generals

There are 10 firms in an industry, and each firm has a market share of 10 percent. The industry's Herfindahl index is

1,000

Ingvar and Olaf are the only two fishermen in their area. Each has been assigned an ITQ that allows him to catch 20 tons of salmon. Ingvar's MC of catching salmon is $6 per ton while Olaf's MC of catching salmon is $7 per ton. If the price of salmon is $10 per ton, then to maximize efficiency, the two guys should trade ITQs until Ingvar is in charge of catching _________ tons while Olaf catches __________ tons.

40; 0.

In the small town of Geneva, there are 5 firms that make watches. The firms' respective output levels are 30 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 10 watches per year. The four-firm concentration ratio for the town's watch-making industry is:

90

Which of the following are products or services of oligopolists that you regularly purchase or own?

Automobiles, personal computers, and gasoline

Good methods for helping to protect natural resources include:

Establishing property rights and giving them to local users. Teaching people to consider user cost. Having the government set up and enforce ITQs.

Demographers have been very surprised that total fertility rates have fallen below 2.0, especially because most people in most countries tell pollsters that they would like to have two children. What factors could be causing so many women in so many countries to average less than two children per lifetime?

Greater participation by women in the paid labor force

what type of industries should be subjected to industrial regulation?

Natural monopolies

Which of the following best describes the efficiency of monopolistically competitive firms

Neither allocatively efficient nor productively efficient

After mining 9,273 tons of coal, Blue Sky Mining's managers note that the marginal cost of mining the next ton of coal would be $40 per ton. They also calculate that the user cost of mining that next ton of coal would be $35. If the market price of coal is $72, should Blue Sky mine an additional ton of coal

No

Does getting rich guarantee doing well environmentally

No, because there are many other factors that may influence environmental quality

It would cost the town of Irondale $50 million to build a gas-powered generator that could produce a maximum of 5 megawatts of electricity at 15 cents per hour. Another alternative would be for Irondale to build a $100 million coal-fired generator that could produce a maximum of 15 megawatts of electricity at 5 cents per hour. Irondale should

Obtain more information before deciding what to do

Some analysts consider oligopolies to be potentially less efficient than monopoly firms because at least monopoly firms tend to be regulated. Arguments in favor of a more benign view of oligopolies include:

Oligopolistic industries may promote technological progress. Oligopolies may engage in limit pricing to keep out potential entrants. Oligopolies can be kept in line by foreign competition.

Both antitrust policy and industrial regulation deal with monopoly. Which of the following statements is true regarding the two approaches?

One approach is to maintain competition using antitrust laws. The other approach is government regulation of the firm, which is used in cases of natural monopoly.

Which of the following apply to oligopoly industries

Strategic behavior, a few large producers

Which of the following statements is true

Persuasive advertising can be excessive, creating a barrier to entering the industry

Which of the following statements is true

Private firms can bring suit against other firms under antitrust laws

In an oligopoly, each firm's share of the total market is typically determined by:

Product development and advertising

When confronted with a natural monopoly that restricts output and charges monopoly prices, the two methods that governments have for promoting better outcomes are

Public ownership and public regulation

The long-run downward trend in commodity prices is consistent with the idea that:

Resource supplies have increased faster than resource demands

Which of the following statements is true

The Sherman Act prohibits conspiracies to restrain trade

Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees them a regulated profit

The legal cartel theory of regulation

Suppose that you hear two people arguing about energy. One says that we are running out of energy. The other counters that we are running out of cheap energy. Based on your economic study, what is your response?

There will always be sources of energy available, but some forms will be more expensive than those we have now

Various cultures have come up with their own methods to limit catch size and prevent fishery collapse. In old Hawaii, certain fishing grounds near shore could only be used by certain individuals. And among lobstermen in Maine, strict territorial rights are handed out so that only certain people can harvest lobsters in certain waters.

These systems provide an incentive to harvest at a sustainable rate. correct These types of systems are more difficult and costly the further the fishing moves from shore. correct

Both antitrust policy and industrial regulation deal with monopoly. The government will choose an approach by

analyzing the structure and other characteristics of the industry

According to Thomas Malthus's theory of human reproduction

as living standards rise above subsistence levels, the population will grow.

A firm charged with violating Section 2 of the Sherman Act could try convincing the court that none of its behavior in achieving and maintaining its monopoly was illegal because a violation of Section 2 of the Sherman Act requires

behavior that indicates intent to monopolize

Advertising is an important aspect of monopolistic competition and oligopoly because

brand distinction encourages consumer loyalty, increasing profits

Industrial regulation

can often create disincentives to minimize costs and diminish the competitiveness of the industry

The Microsoft and Standard Oil cases

differ in the remedy: dissolution for Standard Oil and required behavior changes for Microsoft

In monopolistically competitive industries, economic profits are competed away in the long run; hence, there is no valid reason to criticize the performance and efficiency of such industries. In monopolistically competitive industries

economic profits might be diminished and there will be productive inefficiency

Firms will enter a monopolistically competitive industry when there are

economic profits. This will shift demand to the left, reducing the market share and the economic profit

The most common reason that oligopolies exist is

economies of scale

True or False: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe products, less pollution, and improved working conditions.

false

rue or False. Under the "rule of reason" that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is charging low prices to consumers and acting the same way a competitive firm would act

false

The difference between monopolistic competition and pure competition is that in comparison to pure competition, monopolistic competition has

fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry

Oligopoly differs from monopolistic competition in that oligopoly

has few firms, whereas monopolistic competition has more firms

Resource consumption per person in the United States is either flat or falling, depending on the resource. Yet living standards are rising due to improvements in technology that allow more output to be produced for every unit of input used in production.

his implies that we are unlikely to run out of resources. correct If the population were expected to rise in the future, we could maintain or improve our living standards because of technological advances. correct

"Competition in quality and service may be just as effective as price competition in giving buyers more for their money."

if consumers value quality and service more than a lower price.

There might be a temptation to cheat on the collusive agreement because each firm could

increase its profit even more by secretly charging less than the agreed upon price

n the 1980s, Pepsico Inc., which then had 28 percent of the soft drink market, proposed to acquire the Seven-Up Co. Shortly thereafter the Coca-Cola Company, with 39 percent of the market, indicated it wanted to acquire the Dr. Pepper Company. Seven-Up and Dr. Pepper each controlled about 7 percent of the market. The government's decision to block these mergers was

justified because the proposed merged companies would have resulted in a Herfindahl index well over the guideline used by the Federal government for horizontal mergers

"Monopolistic competition is monopolistic up to the point at which consumers become willing to buy close-substitute products and competitive beyond that point." This statement recognizes that products of monopolistically competitive firms

may be preferred by consumers, giving them monopoly power; however, consumers will seek substitutes if the price is too high, making them competitiv

The rulings in the Standard Oil and the U.S. Steel cases indicate that

monopoly violations must involve intent through abusive and anticompetitive actions

Aquaculture is the growing of fish, shrimp, and other seafood in enclosed cages or ponds. The cages and ponds not only keep the seafood from swimming away but also provide aquaculturalists with strong property rights over their animals. These property rights provide

more incentive to invest in maintaining and improving fish resources and lowering production costs than would occur with open water fishing

The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has

one firm, a unique product, price control, and entry barriers

Monopolistically competitive firms frequently prefer nonprice to price competition because

price competition can lead to lower economic profit or even loss

A proposed merger of firms that would lessen competition and reduce unit costs through economies of scale should be allowed if

price reductions associated with the decrease in unit costs will outweigh the increase in price associated with the reduced level of competition in the industry

An administration that believes that competitive forces will resolve any monopoly problems, believes in the

process of creative destruction, and will likely take a laissez-faire perspective to resolving monopoly problems

Product differentiation

provides an advantage in the market

Advertising promotes efficiency and benefits consumers by

providing information about new products, increasing sales and output, and lowering average total cost

The main antitrust issue in the DuPont cellophane case was the

size of the relevant market

The optimal amount of product safety in automobiles may be less than the amount that would totally eliminate risks of accidents and deaths because

the marginal cost of providing the extra units of safety would exceed the expected marginal benefit received from the design change

A community has a nighttime energy demand of 50 megawatts but a peak daytime demand of 75 megawatts. It has the chance to build a 90-megawatt coal-fired plant that could easily supply all of its energy uses even at peak daytime demand. Before deciding, the community should consider

the relatively higher fixed costs of a coal-fired plant versus the operating costs of the alternatives

A firm charged with violating Section 7 of the Clayton Act might try to argue that the products sold by the merged firms are in separate markets because

this would reduce the likelihood that competition would be affected

"In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits." This statement is

true since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC.

Consider this statement: "The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance." This statement ignores the likelihood that

well behaved monopolies may still be inefficient

Malthus's theory

works best for nonhuman life forms because they lack any ability to reason