AP Econ, Ch. 28, Test Answers

The contestable market theory assumes that

entry to and exit from the industry is relatively easy and inexpensive

regulators employee average cost pricing instead of marginal cost pricing because

Price must be high enough to cover all opportunity cost if the firm is to stay in business

which of the following would not be included among the short run effects of deregulation

Price that approximate marginal cost

The behavior of regulators when trying to win approval for their actions from their entire constituency is best described by the

share the gains share the pains hypothesis

A theory of regulatory behavior which states that regulators much take into account the preferences of legislators producers and consumers is the

share the games share the pain theory

which of the following is not classified as a natural monopoly

A supplier of lumber and woodburning products

which of the following is not exempt from antitrust laws

Airlines

The hypothesis that regulators eventually are controlled by the regulated firms and their special interest is the

Capture hypothesis

which of the following would be most likely to promote competitive pricing of products

Clayton act

if the government decides to regulate the monopolist in the figure above using a marginal cost pricing the regulated price and quantity become

F and Q3

The regulatory agency most concerned with false advertising is the

FTC

which of the following statements can correctly be made about social regulation

I only

The theory of contestable markets holds that

Industries made up of a few firms still must price comparatively if entry is relatively easy

which of the following industries does not have the characteristics of a natural monopoly

Long distance telephone companies

all of the following are exempt from antitrust laws except

Oil companies

an unregulated natural monopolist would produce where

P=AC

in the figure above an unregulated monopolist will set it's level of output and price at

Q1 and A

in the figure above an unregulated natural monopolist will produce output level

Q2

in the figure above a regulated monopolist allowed to earn the fair rate of return would be producing output level

Q3

in the figure above a regulation requiring marginal cost pricing would force the firm to produce at output level

Q4

which antitrust act was passed to protect independent retailers from unfair discrimination by chain stores

Robinson Patman

which antitrust law is sometimes called the chain store act

Robinson Patman act

The first antitrust law in the United States it was the

Sherman act

The primary antitrust statue in the United States is the

Sherman antitrust act of 1890

in some cases social regulation may alter individuals behavior for example there is evidence to indicate that has more automobile safety regulations have been introduced more individuals have begun to drive recklessly this phenomenon is known ass

The Feedback effect

The notion that regulated industry members themselves sooner or later are able to control regulatory bodies is referred to as

The capture theory

The capture theory of regulation refers to which of the following

The control of regulatory agencies by firms in the industry

One common short run effect of deregulation is

The exit of high cost producers from the industry

suppose that a regulatory agency impose marginal cost pricing on a natural monopolist we expect that

The firm will go out of business

The capture hypothesis suggests that

The firms being regulated will unduly influence the regulations

when trying to determine if a firm has monopoly power courts in the United States tend to examine

The firms percentage share of the relevant market

The difference

The former sales price is based on actual cost and the latter focuses on setting prices search that the firm earns a normal rate of return

for an industry to be considered a contestable market the firms in the industry must be

able to enter and leave the industry easily

according to the capture hypothesis s it appears that regulators eventually end up

adopting policies that benefit the firms being regulated

Government policy that attempts to prevent collusion among the sellers of a product attempt to prevent restraint of trade is known as

antitrust policy

prices will be close to the competitive level in contestable markets because

any economic profits induce extrants immediately and the extrants can exit costlessly if profits become negative

regulators usually encourage natural monopolies to engage in

average cost pricing

The price charged by a monopolist is socially inefficient because the price

exceeds the true marginal cost of the resources used

A firm that has taken advantage of economies of scale and I has expanded to become the only producer in the market is

cartel

which of the following is an example of a regulatory agency concern with social regulation

consumer product safety commission

if a market is highly contestable you would expect that there would be

cost curves that are consistant with technological efficiency

One type of economic regulation often use in the United States by various Public utility commission allows prices to reflect only the actual cost of production and no monopoly profits this type of economic regulation is known ass

cost of service regulation

in the short run deregulation has been followed by

disruptions in local economies caused by bankruptcies

in the figure above a regulated natural monopoly is producing an output of Q3 would be

earning zero economic profit

with average cost pricing the monopolist

earns a fair rate of return for its shareholders

in the figure above the area of rectangle ABHG represents the natural monopolist

economic profits

which of the following statements regarding economic regulation is true

economic regulation deals with prices firm's in charge of firms can alter the return by altering quality of service effectively raising the price per constant called her unit

which of the following options is not characteristic of a contestable market

high profits in the long run

when promoting average cost pricing regulators

include what they consider to be a fair rate of return on investment

The Federal Trade Commission was established in 1914 to

investigate unfair competitive practices

A major shortcoming of the Sherman act

it failed to explicitly state which activities were illegal

One criticism of social regulation is that

it imposes relatively greater cost on smaller firms creating anti competitive effects

as a general rule of thumb a firm is considered to have monopoly power if

it's share of the relevant market is 70% or more

if a public service commission requires a natural monopoly to establish its price equal to the long run marginal cost this will result in

losses to the monopoly

in the long run deregulation usually results in

lower prices to most consumers

The benefits of social regulation are

often difficult to measure

A natural monopoly owes is existence to

persistent declining long run average cost as scale increases

Deregulation is the

phasing out of pass regulations of economic activity

One goal of rate of return regulation is the prevention of

predatory competition

in the figure above if the firm is operating at output level Q2 which of the following statements is false

prices are costs are lower than an equivalent firm force by regulators to charge ATC pricing

A conclusion of the contestable market theory is that

pricing will be relatively competitive to discourage entry of new firms

without any regulation the natural monopolist will

produce less output than they would if the industry was purely competitive rather than than monopolistic

cost of service regulation allows the regulated companies to charge only prices that

reflect the actual average cost of providing the services to the customer

The capture in the captured hypothesis occurs because

regulartors usually have been or will be associated with the industries they regulate

according to the capture hypothesis

regulators eventually support the views of the regulated firms instead of the consumers or taxpayers regardless of why the regulatory agency was established

regulation focused on the impact of production on the environment and society the working conditions under which production occurs or the physical attributes of goods is known as

social regulation

The argument which suggests that regulation balance the interest of firms consumers and legislators is called

the share the gains share the pains theory

with a natural monopoly

there are large economies of scale relative to demand

The Federal Trade Commission act as amended prohibits

unfair competitive practices and deceptive acts

A natural monopoly that is not regulated will choose to produce

where marginal revenue equals marginal cost