Chapters 9, 10, 11, & 12
33. In which of the following cases was the firm found not guilty of violating the Sherman Act?
A. Microsoft case B. Standard Oil case C. Alcoa case D. DuPont cellophane case D.
6. In which of the following cases did the final court decision result in a breakup of the firm into competing businesses?
A. U.S. Steel case B. Standard Oil case C. Microsoft case D. DuPont cellophane case B.
21. In the short run, a profit-maximizing monopolistically competitive firm sets it price
A. below marginal cost of production. B. equal to marginal revenue. C. equal to marginal cost of production. D. above marginal cost of production. D.
44. "Variety is the spice of life" is best applied to which market structure?
A. oligopoly B. monopoly C. monopolistic competition D. pure competition C.
16. Homogeneous oligopoly exists where a small number of firms are
A. setting price and output independently. B. setting price and output collusively. C. producing differentiated products. D. producing virtually identical products. D.
20. A tax that takes a larger proportion of income from low-income groups than from high-income groups is a
A. stabilizing tax. B. progressive tax. C. regressive tax. D. proportional tax. C.
50. The Herfindahl index for a pure monopolist is
A. 100. B. 100,000. C. 10,000. D. 10. C.
41. Tying contracts are illegal under the
A. Celler-Kefauver Act of 1950. B. Clayton Act of 1914. C. FTC Act of 1914. D. Wagner Act of 1935. B.
32. In the diagram, S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss (or deadweight loss) of the tax is shown by areas
A. E + F. B. A + B + C + E + F. C. A + B + C. D. A + B + F. A.
32. Which of the following statements best describes the Internet market structure?
A. It is highly competitive, with many providers and no firms in a dominant position. B. There are a few large firms, such as Google, Facebook, and Amazon, each dominating a particular sector but always trying to gain market share in another sector. C. There are a few large firms, such as Google, Facebook, and Amazon, but they each occupy their own niche and don't infringe on the others' territories. D. It comprises firms that have been granted monopolies by the government and are highly regulated. B.
27. Interlocking directorates refers to a situation where
A. a company's board splits into two rival camps locked in constant struggle. B. members of the board of directors of a firm could not agree on a clear strategy for the firm. C. a director of one firm is also a board member of a competing firm. D. competing firms have separate and different members in their boards. C.
20. If there are significant economies of scale in an industry, then
A. a firm that is large may be able to produce at a lower unit cost than can a small firm. B. firms must differentiate their products to earn economic profits. C. a firm that is large will have to charge a higher price than will a small firm. D. entry to that industry will be easy. A.
43. Price-fixing is considered to be a per se violation of the antitrust laws because
A. a guilty verdict requires proof of injury to consumers. B. a guilty verdict requires proof of injury to other competitors. C. a guilty verdict need only show that there was a conspiracy to fix prices, not that it succeeded. D. the rule of reason is applicable. C.
19. Refer to the income tax schedule given in the table. The tax represented is
A. regressive. B. optimal. C. proportional. D. progressive. D.
7. Government regulation of firms' prices or "rates" in selected industries (e.g. electricity) is the focus of
A. social regulation. B. antitrust policy. C. incomes policy. D. industrial regulation. D.
18. The kinked-demand curve model of oligopoly is useful in explaining
A. the process by which oligopolists merge with one another. B. why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. C. the way that collusion works. D. why oligopoly firms do not change their prices frequently. D.
36. Which of the following is correct?
A. Conglomerate mergers occur when two or more firms at various stages in a good's production are combined. B. A vertical merger entails the merging of two or more competing firms. C. Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers. D. Horizontal mergers are more likely to be acceptable under antitrust laws than are vertical mergers. C.
40. Refer to the diagram. Equilibrium price is
A. b. B. e. C. d. D. c. C.
12. Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be
A. $10. B. $13. C. $19. D. $16. D.
34. Refer to the data. The Herfindahl index for the industry is
A. 1,800. B. 80. C. 18,000. D. 1,600. A.
33. The tax that is most difficult to shift to others would be
A. business property taxes. B. the corporate income tax. C. specific excise taxes. D. the personal income tax. D.
27. Taxes on commodities or on purchases are known as
A. corporate income taxes. B. personal income taxes. C. payroll taxes. D. sales and excise taxes. D.
2. The term oligopoly indicates
A. many producers of a differentiated product. B. a few firms producing either a differentiated or a homogeneous product. C. a one-firm industry. D. an industry whose four-firm concentration ratio is low. B.
5. Game theory can be used to demonstrate that oligopoly firms
A. may be either homogeneous or differentiated. B. experience economies of scale. C. can increase their profits through collusion. D. rarely consider the potential reactions of rivals. C.
37. Oligopolistic firms engage in collusion to
A. minimize unit costs of production. B. earn greater profits. C. increase production. D. realize allocative efficiency, that is, the P = MC level of output. B.
43. Refer to the diagram for a monopolistically competitive producer. The firm is
A. minimizing losses in the short run. B. minimizing losses in the long run. C. about to leave the industry. D. realizing a normal profit in the long run. D.
25. The restaurant, legal assistance, and clothing industries are each illustrations of
A. monopolistic competition. B. homogeneous oligopoly. C. countervailing power. D. pure monopoly. A.
11. In the US market, people often refer to the "Big Three" in autos and the "Big Four" in accounting.These terms suggest that these two industries are
A. monopolistically competitive. B. oligopolies. C. monopolies. D. purely competitive. B.
31. The table gives demand and supply data for a competitive market. If government levies a per-unit excise tax of $1 on suppliers of this product, equilibrium price (paid by the buyers) and the equilibrium quantity will be
A. $7 and 3,000. B. $9 and 3,000. C. $8.50 and 2,250. D. $7.50 and 2,250. C.
43. The graph illustrates the market for a product on which an excise tax has been imposed by government. How much of the excise tax per unit is paid by the buyers?
A. $8 B. $3 C. $5 D. $6 B.
29. The table gives demand and supply data for a competitive market. If government provides a per-unit subsidy of $2 to suppliers of this product, equilibrium price (paid by the buyers) and the equilibrium quantity will be
A. $9 and 3,000. B. $7.50 and 2,250. C. $7 and 3,000. D. $8.50 and 2,750. C.
2. If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is
A. 1,000. B. 2,500. C. 3,750. D. 10,000. B.
48. Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be
A. 180. B. 210. C. 160. D. 100. C.
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23. Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000. In year 2, you pay an average tax rate of 25 percent on a taxable income of $30,000. Assuming no change in tax rates, the marginal tax rate on your additional $10,000 of income between year 1 and year 2 is
A. 12 percent. B. 42 percent. C. 35 percent. D. 5 percent. C.
4. The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would suggest that the industry was monopolistically competitive?
A. 25 and 207 B. 80 and 1800 C. 89 and 2582 D. 76 and 2662 A.
14. Refer to the personal income tax schedule given in the table. If your taxable income is $8,000, your average tax rate is
A. 25 percent, and the marginal rate on additional income is 40 percent. B. 25 percent, and the marginal rate on additional income is also 25 percent. C. 20 percent, and the marginal rate on additional income is 30 percent. D. 25 percent, and the marginal rate on additional income cannot be determined from the information given. A.
7. Refer to the income tax schedule given in the table. If your taxable income increases from $4,000 to $5,000, you will encounter a marginal tax rate of
A. 25 percent. B. 40 percent. C. 10 percent. D. 15 percent. B.
24. Refer to the income tax schedule given in the table. If your taxable income is $4,000, your average tax rate will be
A. 5 percent. B. 15 percent. C. 30 percent. D. 10 percent. B.
12. If you would have to pay $5,000 in taxes on a $25,000 taxable income and $7,000 on a $30,000 taxable income, then the marginal tax rate on the additional $5,000 of income is
A. 50 percent, and the average tax rate is 40 percent at the $30,000 income level. B. 40 percent, and the average tax rate is about 23 percent at the $30,000 income level. C. 40 percent, and the average tax rate is 25 percent at the $25,000 income level. D. 30 percent, but average tax rates cannot be determined from the information given. B.
35. In the diagram, S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax payment to government is shown by area(s)
A. A + B + C + E + F. B. E + F. C. A only. D. A + B + C. D.
44. In the diagram, S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by producers is shown by area(s)
A. A + B + C. B. C only. B. A + B + F. C. E + F. B.
22. In the diagram, S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by consumers is shown by areas
A. A + B. B. A + B + F. C. E + F. D. A + B + C. A.
8. Assume the Environmental Protection Agency imposes an excise tax on polluting firms. In which of the following situations would we expect the additional costs to be borne most heavily by consumers?
A. Demand is highly elastic and supply is highly inelastic. B. Demand is highly inelastic and supply is highly elastic. C. Demand and supply are both highly inelastic. D. Demand and supply are both highly elastic. B.
26. Which of the following is a measure of the degree of industry concentration (or market power of firms in an industry)?
A. Dow Jones Industrial Average B. Herfindahl Index C. Employment Cost Index D. S&P 500 Index B.
39. The government was successful in gaining an antitrust conviction in the
A. DuPont cellophane case. B. Alcoa case. C. IBM case. D. U.S. Steel case. B.
24. The antitrust laws are enforced by the
A. Federal Bureau of Investigation. B. Department of Commerce. C. Antimonopoly Court of Appeals. D. Federal Justice Department and the Federal Trade Commission. D.
28. Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a differentiated oligopoly firm in a highly concentrated industry?
A. Ford Motor Company B. Subway Sandwiches C. Kaiser Aluminum D. Pittsburgh Plate Glass A.
38. The table contains five tax schedules for an economy. All figures are in billions of dollars. Which of the schedule(s) represent(s) a regressive tax?
A. I only B. V only C. III and V D. IV only A.
37. The table contains five tax schedules for an economy. All figures are in billions of dollars. Which of the schedule(s) represent(s) a progressive tax?
A. II and III B. III and V C. III only D. V only B.
26. The table contains five tax schedules for an economy. All figures are in billions of dollars. Which of the schedule(s) represent(s) a proportional tax?
A. IV only B. III and V C. II and IV D. I only C.
19. Which of the following statements concerning a monopolistically competitive industry is correct?
A. If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms in the industry will shift to the left. B. If there are short-run losses, firms will leave the industry and the demand curves of the remaining firms in the industry will shift to the right. C. If there are short-run economic profits, new firms will enter the industry and the demand curves of existing firms will shift to the right. D. If there are short-run economic profits, firms will leave the industry and the demand curves of the remaining firms in the industry will shift to the right. B.
35. In the Microsoft antitrust case, the federal government said in essence that
A. Microsoft was a "bad monopoly." B. the mere presence of monopoly violated the Sherman Act, irrespective of Microsoft's behavior. C. Microsoft was generally a "good monopoly" but that its tying contracts involving Internet Explorer violated the Clayton Act. D. the case was similar to the U.S. Steel case of 1920. A.
3. Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?
A. P = MC. B. P exceeds minimum ATC. C. MC exceeds MR. D. MC = ATC. B.
36. We would expect a cartel to achieve
A. neither allocative efficiency nor productive efficiency. B. allocative efficiency but not productive efficiency. C. productive efficiency but not allocative efficiency. D. both allocative efficiency and productive efficiency. A.
47. Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The federal government would most likely file charges under the
A. Sherman Act, Section 1. B. Federal Trade Commission Act. C. Clayton Act. D. Sherman Act, Section 2. A.
17. The legislation that prohibits the acquisition of assets of another company if the transaction would significantly reduce competition, thereby closing a loophole in the Clayton Act, is the
A. Sherman Act. B. Federal Trade Commission Act. C. Celler-Kefauver Act. D. Wheeler-Lea Act. C.
43. Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?
A. They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets. B. They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates. C. They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms. D. They tend to act independently, paying little attention to what the other firms do. A.
30. Using income as the tax base, which of the following best illustrates a regressive tax?
A. a 7 percent general sales tax B. the personal income tax C. the corporate income tax D. the federal inheritance tax A.
45. Oligopolistic industries are characterized by
A. a few dominant firms and low entry barriers to new firms in the industry. B. a few dominant firms and no entry barriers to new firms in the industry. C. a large number of firms and low entry barriers to new firms in the industry. D. a few dominant firms and substantial entry barriers to new firms in the industry. D.
6. Monopolistic competition means
A. a large number of firms producing a standardized or homogeneous product. B. a market situation where competition is based entirely on product differentiation and advertising. C. a few firms producing a standardized or homogeneous product. D. many firms producing differentiated products. D.
30. If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price in the industry will approximate those of
A. a monopolistically competitive producer. B. an industry with a low four-firm concentration ratio. C. a purely competitive producer. D. a pure monopoly. D.
42. A breakdown in price leadership leading to successive rounds of price cuts is known as
A. a price war. B. limit pricing. C. price discrimination. D. informal pricing. A.
15. Which of the following best reflects the ability-to-pay philosophy of taxation?
A. a progressive income tax B. a tax on residential property C. an excise tax on coffee D. an excise tax on gasoline A.
10. Refer to the diagram for a monopolistically competitive producer. This firm is experiencing
A. a shortage of production capacity. B. excess capacity of CD. C. diseconomies of scale. D. excess capacity of DE. D.
16. A merger between a maker of household detergents and a fast-food chain would be an example of
A. a tying contract. B. a conglomerate merger. C. an interlocking directorate. D. a horizontal merger. B.
3. Suppose Slow Ketchup requires that, as a condition of purchase, all restaurants using its product must buy and make available its new sales product. This arrangement is an example of
A. a tying contract. B. price discrimination. C. an interlocking directive. D. price-fixing. A.
38. Which of the following is most likely to increase the Herfindahl index of a particular industry?
A. a vertical merger between one of an industry's largest firms and one of the many input suppliers in the resource market B. a conglomerate merger involving one of the industry's major firms C. an agreement by all the industry firms to divide up the market among them D. a horizontal merger between two of the industry's largest firms D.
25. One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?
A. a very small number of firms producing a homogeneous product B. a rather large number of firms producing a homogeneous product C. a very small number of firms producing a differentiated product D. a rather large number of firms producing a differentiated product A.
31. Nonprice competition refers to
A. advertising, product promotion, and changes in the real or perceived characteristics of a product. B. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. C. price increases by a firm that are ignored by its rivals. D. reductions in production costs that are not reflected in price reductions. A.
28. Excess capacity in an industry implies
A. allocative inefficiency. B. productive inefficiency. C. allocative efficiency. D. productive efficiency. B.
32. In monopolistic competition, which of the following would make an individual firm's demand curve less price elastic?
A. an increase in the price of the firm's product B. an increase in the number of rival firms C. increased brand loyalty toward the firm's product D. the purchase of more efficient machinery C.
24. The industry characterized by these data is
A. an oligopoly. B. a purely competitive industry. C. a pure monopoly. D. a monopolistically competitive industry. A.
10. The Organization of Petroleum Exporting Countries (OPEC) provides an example of
A. an unwritten, informal understanding. B. noncollusive oligopoly. C. a monopolistically competitive industry. D. an international cartel. D.
29. An example of a horizontal merger is one between an airline and
A. another airline. B. a car rental company. C. an aluminum company. D. a chain of hotels. A.
10. A vertical merger involves a combining of one or more firms
A. as the result of one firm purchasing the assets of the other. B. operating at the same stage of the production process. C. operating at different stages of the production process in a particular industry. D. that are operating in entirely different industries. C.
15. A monopolistically competitive firm is producing at an output level in the short run where average total cost (ATC) is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating
A. at the break-even point. B. with a loss. C. at a nonoptimal level of output. D. with positive profits. B.
18. The economic inefficiencies of monopolistic competition may be offset by the fact that
A. available capacity is fully utilized. B. resources are optimally allocated to the production of the product. C. advertising expenditures shift the average cost curve upward. D. consumers have increased product variety. D.
12. One of the functions of the Federal Trade Commission is to
A. ban or recall unsafe consumer products. B. establish railway rates for interstate railroads. C. investigate instances of faulty and misleading advertising. D. prevent insider trading in securities markets. C.
9. If an industry evolves from monopolistic competition to oligopoly, we would expect
A. barriers to entry to weaken. B. the four-firm concentration ratio to remain the same. C. the four-firm concentration ratio to increase. D. the four-firm concentration ratio to decrease. C.
7. If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will
A. be unaffected. B. become more elastic. C. shift to the left. D. shift to the right. D.
36. In the long run, a profit-maximizing monopolistically competitive firm sets it price
A. below marginal cost of production. B. equal to marginal revenue. C. above marginal cost of production. D. equal to marginal cost of production. C.
25. Critics of industrial regulation say that such regulation
A. benefits small firms at the expense of large firms. B. contributes to X-inefficiency. C. creates insurmountable principal-agent problems. D. suffers from the free-rider problem. B.
35. Suppose that firms A and F in this table merged into a single firm. The four-firm concentration ratio and the Herfindahl index would
A. both rise. B. both fall. C. rise and remain unchanged, respectively. D. remain unchanged and rise, respectively. A.
14. Three major means of collusion by oligopolists are
A. cartels, informal understandings, and price leadership. B. market sharing, mutual interdependence, and product differentiation. C. cartels, kinked-demand pricing, and product differentiation. D. informal understandings, P = MC pricing, and mutual interdependence. A.
13. Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes
A. cost-plus pricing. B. multiproduct pricing. C. price leadership. D. a cartel. D.
21. Secret conspiracies to fix prices are examples of
A. covert collusion. B. price leadership. C. cartels. D. overt collusion. A.
33. If competing oligopolists completely ignore oligopolist X's price changes, then X's
A. demand curve will be less elastic than if the other oligopolists matched X's price changes. B. demand and marginal revenue curves will coincide. C. demand curve will be more elastic than if the other oligopolists matched X's price changes. D. marginal revenue curve will have a vertical gap. C.
46. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $.25, we can conclude that the
A. demand for X is highly elastic. B. supply of X is highly elastic. C. supply of X is highly inelastic. D. demand for X is highly inelastic. C.
6. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.90 of the tax and the consumers pay $.10, we can conclude that the
A. demand for X is highly inelastic. B. demand for X is highly elastic. C. supply of X is highly inelastic. D. supply of X is highly elastic. B.
27. Excess capacity refers to the
A. differential between price and marginal costs that characterizes monopolistically competitive firms. B. fact that entry barriers artificially reduce the number of firms in an industry. C. amount by which actual production falls short of the minimum ATC output. D. fact that most monopolistically competitive firms encounter diseconomies of scale. C.
2.Suppose that you own a toy store and want to buy 100 talking robots. Your supplier will sell you the robots only if you also agree to buy 200 dolls. This is an illegal practice called
A. discriminatory. B. a tying contract. C. a cartel. D. monopolistic. B.
29. Which of the following is a unique feature of oligopoly?
A. nonprice competition B. mutual interdependence among firms in the industry C. advertising expenditures D. product differentiation B.
46. In the long run, a representative firm in a monopolistically competitive industry will end up
A. earning a normal profit, but not an economic profit. B. having a larger number of competitors than it will in the short run. C. producing a level of output at which marginal cost and price are equal. D. having an elasticity of demand that will be less than it was in the short run. A.
38. In the United States cartels are
A. encouraged by government policy so firms can achieve economies of scale. B. concentrated in monopolistically competitive industries. C. quite common in industries that produce nondurable goods. D. in violation of the antitrust laws. D.
21. If the demand for a product is perfectly inelastic, the incidence of an excise tax will be
A. entirely on the buyer. B. entirely on the seller. C. mostly on the buyer. D. mostly on the seller. A.
34. Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the
A. equal sacrifice theory of taxation. B. benefits-received principle of taxation. C. shifting of taxes to consumers. D. ability-to-pay principle of taxation. C.
3. As a general rule, oligopoly exists when the four-firm concentration ratio
A. equals the Herfindahl index. B. is 50 percent or more. C. is 40 percent or more. D. yields a Herfindahl index below 500. C.
46. Which of the following findings would be the most likely to lead the U.S. Justice Department to block a corporate merger under terms of the Clayton Act?
A. evidence that one of the firms is highly unprofitable B. a high premerger Herfindahl index in the industry and a large boost in the index because of the merger C. a low pre- and postmerger concentration ratio in the industry D. a buyer-seller relationship between the two firms B.
15. If firms E and Fin this table merged into a single firm, the Herfindahl index would
A. fall. B. not change. C. rise, but the four-firm concentration ratio would remain unchanged. D. rise, as would the four-firm concentration ratio. C.
41. If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ________ and its Herfindahl index would ________.
A. fall; rise B. fall; fall C. remain the same; rise D. remain the same; fall B.
49. The likelihood of a cartel being successful is greater when
A. firms are producing a differentiated, rather than a homogeneous, product. B. the cost curves and demand faced by various participants are very similar. C. the economy is in the recession phase of the business cycle. D. the number of firms involved is relatively large. B.
31. In the Alcoa case of 1945, the courts held that
A. firms that sell more than one-half of their output overseas are exempt from antitrust. B. only contracts and combinations that unreasonably restrain trade are in violation of the Sherman Act. C. the mere possession of monopoly power is a violation of the antitrust laws. D. retail and wholesale firms are exempt from antitrust legislation. C.
39. In economics, the term "public sector" refers to the
A. general public. B. consuming public as well as businesses. C. publicly owned corporations. D. federal, state, and local government. D.
17. Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest
A. greater market power in Y than in X. B. greater market power in X than in Y. C. that X is more technologically progressive than Y. D. that price competition is stronger in Y than in X. A.
46. Refer to the diagram. Equilibrium output is
A. h. B. f. C. j. D. g. D.
28. The ability-to-pay principle of taxation
A. has been declared unconstitutional because it deprives individuals of property without due process of law. B. suggests that taxes should vary directly with people's income and wealth. C. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. D. suggests that taxes should vary inversely with people's income and wealth. B.
37. A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
A. high entry barriers to entry of new firms in the industry. B. mutual interdependence in decision making among firms. C. product differentiation. D. the likelihood of collusion among firms. C.
1. The more inelastic are demand and supply, the
A. higher is the proportion of an excise tax paid by consumers. B. larger is the efficiency loss of an excise tax. C. smaller is the efficiency loss of an excise tax. D. smaller is the proportion of an excise tax paid by producers. C.
1. Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a
A. higher price and higher output. B. higher price and lower output. C. price and output that may be higher or lower. D. lower price and lower output. B.
50. Which of the following industries is the best illustration of homogeneous oligopoly?
A. household laundry products B. personal computers C. the auto industry D. aluminum D.
8. Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely
A. ignore this merger because of the relatively small increase in the Herfindahl index. B. prevent the merger, contending that it violates the Clayton Act. C. allow the merger but watch the new firm carefully for future violations of the antitrust laws. D. allow the merger if foreign entry to the industry is possible. B.
8. A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost (ATC) is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should
A. increase the level of output. B. decrease the level of output. C. make no change in the level of output. D. reduce product price. C.
39. Advertising can enhance economic efficiency when it
A. increases consumer awareness of substitute products. B. increases brand loyalty. C. boosts average total cost. D. raises entry barriers. A.
47. Cartels are difficult to maintain in the long run because
A. individual members may find it profitable to cheat on agreements. B. they are illegal in all industrialized countries. C. entry barriers are insignificant in oligopolistic industries. D. it is more profitable for the industry to charge a lower price and produce more output. A.
4. The benefits-received principle of taxation is most evident in
A. inheritance taxes. B. the corporate income tax. C. the personal income tax. D. excise taxes on gasoline. D.
26. Which of the following does NOT necessarily violate antitrust laws?
A. interlocking directorates B. price discrimination C. deceptive advertising D. price-fixing B.
14. An industry having a four-firm concentration ratio of 30 percent
A. is an oligopoly. B. is monopolistically competitive. C. approximates pure competition. D. is a pure monopoly. B.
44. Price-fixing
A. is illegal under terms of the Federal Trade Commission Act. B. may be either legal or illegal depending on whether or not it produces above-normal profits. C. is prohibited by Section 7 of the Clayton Act. D. is a per se violation of the antitrust laws. D.
7. Refer to the diagram. In equilibrium the firm
A. is making an economic profit of ad per unit (of output produced). B. should close down in the short run. C. is making an economic profit of bd per unit (of output produced). D. is incurring a loss. A.
4. An industry having a four-firm concentration ratio of 85 percent
A. is monopolistically competitive. B. is a pure monopoly. C. approximates pure competition. D. is an oligopoly. D.
42. Overall, economists believe that deregulation of industries formerly subjected to industrial regulation (e.g. airlines)
A. is neutral in its impact on society's well-being, creating minimal net benefits at best. B. has been a clear failure. C. has produced large net benefits for consumers and society. D. has produced sizable efficiency gains in the communications industry, but not in the transportation industry (railways, trucking, airlines). C.
34. A major shortcoming of the Sherman Act was that
A. it was too specific. B. violators of the act were forced out of business. C. it did not explicitly state which activities were illegal. D. it was never enforced by the courts. C.
28. 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
A. laissez-faire perspective on antitrust. B. structuralist view of antitrust. C. behavioralist view of antitrust. D. active antitrust perspective. A.
5. Monopolistic competition is characterized by a
A. large number of firms and substantial entry barriers. B. few dominant firms and substantial entry barriers. C. large number of firms and low entry barriers. D. few dominant firms and low entry barriers. C.
15. Suppose the Supreme Court rules that the ABC Corporation is in violation of the antitrust laws because it produces 70 percent of the output of its industry. This decision is consistent with the
A. legal cartel theory of regulation. B. Alcoa case. C. behavioralist approach to antitrust. D. U.S. Steel case. B.
22. Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called
A. limit pricing. B. price leadership. C. pricing the demand curve. D. mutual interdependence. A.
49. The main purpose of industrial regulation is to
A. lower price to average total cost such that the firm earns a fair return. B. reduce X-inefficiency. C. lower price to marginal cost. D. break monopolies into competing firms. A.
22. The Sherman Act of 1890 was designed to
A. make interlocking directorates legal. B. exempt commercial banks from the antitrust laws. C. prohibit misleading and antisocial advertising. D. make monopoly and acts that restrain trade illegal. D.
49. A monopolistically competitive firm is producing at a short-run output level where average total cost (ATC) is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should
A. make no change in the level of output. B. decrease the level of output. C. increase product price. D. increase the level of output. D.
13. Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that
A. market power is greatest in industry B. B. market power is greatest in industry A. C. market power is greatest in industry C. D. industry A is more monopolistic than industry C. C.
45. The actual incidence of payroll taxes, in the consensus view, is
A. more on the employer than on the worker. B. split evenly between the worker and the employer. C. more on the worker than on the employer. D. all on the employer, who remits the tax to the government. C.
42. In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits
A. must be less than its ATC. B. will be equal to ATC, but not the minimum ATC. C. must be more than ATC. D. may be either equal to ATC, less than ATC, or more than ATC. B.
1. 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
A. natural monopoly. B. perfect market. C. horizontal market. D. contestable market. A.
32. In the 1911 Standard Oil case, the U.S. Supreme Court found Standard Oil
A. not guilty of tax evasion for merger activity. B. not guilty of monopolizing the petroleum industry. C. guilty of monopolizing the petroleum industry. D. guilty of tax evasion for merger activity. C.
45. Concentration ratios measure the
A. number of firms in an industry. B. geographic location of the largest corporations in each industry. C. percentage of total industry sales accounted for by the largest firms in the industry. D. degree to which product price exceeds marginal cost in various industries. C.
17. Pricing and output decisions of firms are more difficult to analyze in oligopoly than other market models because
A. of mutual interdependence of firms and the fact that oligopoly outcomes are less certain than in other market models. B. unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers. C. the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity. D. the number of firms is so large that market behavior cannot be accurately predicted. A.
29. Compared to pure competition, monopolistic competition
A. offers less product differentiation and lower productive efficiency. B. offers less product differentiation but attains a higher productive efficiency. C. provides greater product differentiation and achieves greater productive efficiency. D. provides greater product differentiation at the cost of lower productive efficiency. D.
34. In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?
A. oligopoly, pure competition, monopolistic competition, pure monopoly B. pure monopoly, oligopoly, monopolistic competition, pure competition C. monopolistic competition, pure competition, pure monopoly, oligopoly D. pure monopoly, monopolistic competition, oligopoly, pure competition B.
40. 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
A. prevent the merger, contending that it violates the Clayton Act. B. allow the merger if foreign entry to the industry is possible. C. ignore this merger because of the relatively small size of, and increase in, the Herfindahl index. D. allow the merger but watch the new firm carefully for future violations of the antitrust laws. C.
20. The goal of product differentiation and advertising in monopolistic competition is to make
A. price less of a factor and product differences more of a factor in consumer purchases. B. the firm productively efficient even if it is not allocatively efficient. C. the firm allocatively efficient even if it is not productively efficient. D. price more of a deciding factor and product differences less of a deciding factor in consumer purchases. A.
44. Suppose that an industry is characterized by a few firms and price leadership. We would expect that
A. price would exceed both marginal cost and average total cost. B. price would equal marginal cost. C. marginal revenue would exceed marginal cost. D. price would equal average total cost. A.
9. Antitrust authorities are least likely to take action against
A. price-fixing. B. horizontal mergers. C. conglomerate mergers. D. interlocking directorates. C.
12. Mutual interdependence among firms means that each oligopoly producer
A. produces a product identical to those of its rivals. B. must consider the reactions of its rivals when it determines its own pricing policy. C. faces a perfectly elastic demand for its product. D. produces a product similar but not identical to the products of its rivals. B.
40. A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from
A. product differentiation. B. low entry barriers to entry of new firms in the industry. C. the likelihood of collusion among producers. D. mutual interdependence in decision making among firms. B.
11. Firms in an industry will not earn long-run economic profits if
A. production costs for a given level of output are minimized. B. fixed costs are zero. C. the number of firms in the industry is fixed. D. there is free entry and exit of firms in the industry. D.
39. Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic
A. profit of $280. B. loss of $320. C. profit of $480. D. profit of $600. C.
14. Tying agreements
A. prohibit firms from selling their products outside of specified geographic areas. B. obligate a purchaser of product X to also buy product Y from the same seller. C. allow manufacturers to specify the retail prices of their products. D. establish common boards of directors for previously competing firms. B.
11. The Clayton Act of 1914
A. prohibited unfair or deceptive acts or practices in commerce that tend to reduce competition. B. outlawed vertical and conglomerate mergers. C. prohibited one firm from acquiring the assets of another when the effect was to limit competition. D. outlawed price discrimination, tying contracts, acquisition of stocks of competing corporations, and interlocking directorates that lessen competition. D.
47. The property tax may be regressive even though wealthy people own much more taxable property than do poor people. This possibility arises because
A. property taxes on rental property and business property are shifted. B. marginal and average tax rates on property tend to converge. C. statutory property tax rates decline as the value of property rises. D. wealthy people can evade property taxes, while poor people cannot. A.
17. If each taxpayer paid the same lump-sum amount regardless of income level, the tax system would be
A. proportional. B. progressive. C. regressive. D. disproportionate. C.
33. In which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed?
A. pure competition, oligopoly, pure monopoly, monopolistic competition B. oligopoly, pure competition, monopolistic competition, pure monopoly C. pure competition, monopolistic competition, oligopoly, pure monopoly D. monopolistic competition, pure competition, pure monopoly, oligopoly C.
23. The diagram portrays
A. pure competition. B. collusive oligopoly. C. noncollusive oligopoly. D. pure monopoly. C.
41. In the long run, economic theory predicts that a monopolistically competitive firm will
A. realize all economies of scale. B. earn an economic profit. C. have excess production capacity. D. equate price and marginal cost. C.
47. Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will
A. reduce the excess capacity in the industry as firms expand production. B. make the industry allocatively efficient as each firm seeks to maintain its profits. C. cause firms to standardize their product to limit the degree of competition. D. attract other firms to enter the industry, causing the existing firms' profits to shrink. D.
8. Advertising can reduce economic efficiency when it
A. reduces brand loyalty. B. increases consumer awareness of substitute products. C. increases entry barriers to entry of new firms in the industry, and leads to greater market power for incumbent firms. D. enables firms to achieve substantial economies of scale. C.
48. A major criticism of industrial regulation is that
A. regulatory commissions have frequently caused natural monopolies to go bankrupt. B. by allowing a fair return price, it gives natural monopolists little incentive to contain costs. C. it has been applied to virtually all major U.S. corporations in the post-Second World War period. D. marginal cost pricing has created an underallocation of resources. B.
1. Which of the following is the best example of oligopoly?
A. restaurants B. women's dress manufacturing C. cotton farming D. automobile manufacturing D.
6. Which of the following is the best illustration of differentiated oligopoly?
A. retail stores in large cities B. the soft drink industry C. the aluminum industry D. the steel industry C.
31. Refer to the diagram. This firm's demand and marginal revenue curves are based on the assumption that
A. rivals will match a price increase but ignore a price decrease. B. rivals will ignore a price increase but match a price decrease. C. rivals will match both a price increase and a price decrease. D. the firm has no immediate rivals. B.
11. The main difference between sales and excise taxes is that
A. sales taxes apply to a wide range of products, while excise taxes apply only to a select group of products. B. excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products. C. sales taxes are consumption taxes, while excise taxes are not. D. excise taxes are consumption taxes, while sales taxes are not. A.
18. The three most important sources of federal tax revenue in order of descending importance are
A. sales, payroll, and personal income taxes. B. personal income, payroll, and corporate income taxes. C. personal income, corporate income, and payroll taxes. D. personal income, corporate income, and sales taxes. B.
30. In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the profit-maximizing firm will
A. set price above marginal cost. B. produce at minimum average total cost. C. set price equal to marginal cost. D. always earn an economic profit. A.
19. Differentiated oligopoly exists where a small number of firms are
A. setting price and output collusively. B. setting price and output independently. C. producing virtually identical products. D. producing goods that differ in terms of quality and design. D.
25. Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic. The burden of a $2 excise tax on each tire will be
A. shared about equally by buyers and sellers of tires. B. borne primarily by buyers of tires. C. borne by resource suppliers that provide the inputs for manufacturing tires. D. borne primarily by sellers of tires. B.
16. The federal gasoline tax is assessed on a per-gallon basis, and the proceeds are used for highway maintenance and improvements. This tax is consistent with the
A. single-tax theory of taxation. B. benefits-received principle of taxation. C. pay-as-you-go theory of taxation. D. ability-to-pay principle of taxation. B.
9. In the long run, the economic profits for a monopolistically competitive firm will be
A. slightly more than the profits of a purely competitive firm. B. the same as the profits for a monopolist. C. the same as the profits for a purely competitive firm. D. slightly less than the profits of a monopolist. C.
30. The "rule of reason" indicated that
A. social regulation should not be enforced unreasonably so that costs exceed benefits. B. only contracts and combinations that unreasonably restrain trade violate the antitrust laws. C. the mere possession of monopoly power is a violation of the antitrust laws. D. if less than four firms account for three-fourths of an industry's sales, the industry is in violation of the Sherman Act. B.
27. The prisoner's dilemma game reveals that
A. sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated. B. collusive agreements will always fail. C. the price leadership model does not work. D. nonprice competition is more profitable than price competition. A.
4. 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
A. structuralist view of antitrust. B. behavioralist view of antitrust. C. laissez-faire perspective on antitrust. D. active antitrust perspective. D.
10. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15, we can conclude that the
A. supply of X is highly elastic. B. demand for X is highly inelastic. C. demand for X is highly elastic. D. supply of X is highly inelastic. B.
50. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the
A. supply of X is highly elastic. B. demand for X is highly inelastic. C. supply of X is highly inelastic. D. demand for X is highly elastic. A.
48. An income tax is progressive if the
A. tax rate varies inversely with income. B. percentage of income paid as taxes increases as income increases. C. percentage of income paid as taxes is the same regardless of the size of income. D. absolute amount paid as taxes varies directly with income. B.
3. A progressive tax is such that
A. tax rates are higher the greater one's income. B. the revenues it yields are spent on transfer payments. C. entrepreneurial income is exempt from taxation. D. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. A.
40. The sales tax is a regressive tax because the
A. tax tends to reduce the total volume of consumption expenditures. B. percentage of income paid as taxes is constant as income rises. C. percentage of income paid as taxes falls as income rises. D. administrative costs associated with the collection of the tax are relatively high. C.
22. The Herfindahl index
A. tells us whether oligopolistic firms are engaging in collusion. B. gives much greater weight to larger firms than to smaller firms in an industry. C. is another name for the four-firm concentration ratio. D. tells us the degree to which monopolistically competitive firms are differentiating their products. B.
5. The efficiency loss of a tax is
A. that portion of the tax paid by consumers minus the portion paid by producers. B. that portion of the tax paid by producers minus the portion paid by consumers. C. the net value of sacrificed output caused by the tax. D. the total tax revenue minus the output loss caused by the tax. C.
45. Which one of the following acts declared "every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several states . . . to be illegal"?
A. the Sherman Act of 1890 B. the Federal Trade Commission Act C. the Wheeler-Lea Act D. the Interstate Commerce Act A.
49. The marginal tax rate is
A. the difference between the total tax rate and the average tax rate. B. the percentage of total income paid as taxes. C. equal to the change in taxes/change in taxable income. D. equal to the total taxes/total taxable income. C.
5. In the U.S. Steel case of 1920, the courts held that
A. the fact that U.S. Steel possessed monopoly power was a violation of the Sherman Act. B. although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power. C. any firm that faces substantial import competition is exempt from the antitrust laws. D. the structure of an industry is more important than its behavior in determining violations of the antitrust laws. B.
38. If the four-firm concentration ratio for industry X is 80,
A. the four largest firms account for 80 percent of total sales. B. the industry is monopolistically competitive. C. each of the four largest firms accounts for 20 percent of total sales. D. the four largest firms account for 20 percent of total sales. A.
35. Compared to perfect competition, monopolistic competition is characterized by excess capacity because
A. the goods produced by all producers is perfectly homogeneous. B. firms are always profitable in the long run. C. firms charge a price that is greater than marginal cost of production. D. firms incur additional marketing and advertising costs to create product differentiation. D.
16. If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation decreases,
A. the likelihood of realizing economic profits in the long run would be enhanced. B. the likelihood of collusive pricing among producers will increase. C. the industry would more closely approximate pure competition. D. individual firms would now be operating at outputs where their average total costs would be higher. C.
9. The tax rates embodied in the federal personal income tax are such that
A. the marginal and average tax rates are equal, making the tax progressive. B. the average tax rate rises more rapidly than does the marginal tax rate as income rises. C. the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise as income rises. D. a rising absolute amount, but a declining proportion, of income is paid in taxes. C.
41. Entry fees at national parks and monuments are an example of
A. the principle of limited and bundled choice. B. the benefits-received principle of taxation. C. government bureaucracy and inefficiency. D. the ability-to-pay principle of taxation. B.
48. The mutual interdependence that characterizes oligopoly arises because
A. the products of various firms are differentiated. B. the products of various firms are homogeneous. C. each firm in an oligopoly depends on its own pricing strategy and that of its rivals. D. the demand curves of firms are kinked at the prevailing price. C.
36. The average tax rate is
A. the ratio of total taxes paid to total taxable income. B. the total tax rate minus the marginal tax rate. C. the tax rate that applies to incremental dollars of income. D. equal to the marginal tax rate if the tax is progressive. A.
2. Taxable income is
A. the sum of all wage and property income. B. the same as gross income. C. the only income to which marginal tax rates apply. D. total income less deductions and exemptions. D.
42. Refer to the graph for the labor market. The government decides to impose a wage tax as shown on the graph. The result is that
A. the wage received by laborers will rise to $5.40 and the labor cost to employers will fall to $4.90. B. the wage received by laborers will fall to $4.90 and the labor cost to employers will rise to $5.40. C. the employers and laborers will split the tax evenly, each paying $0.25 to the government. D. more workers enter the labor market due to the higher wage rate being paid. B.
26. The demand curve of an oligopolist can be viewed to have different levels of elasticity (describbed by a kinked-demand curve). This is based on the assumption that
A. there is no product differentiation. B. its competitors will follow its price cut but ignore a price increase. C. its competitors will match both price cuts and price increases. D. its competitors will ignore its price cut but follow a price increase. B.
24. Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that
A. this industry is monopolistically competitive. B. firms in this industry likely collude with each other. C. this industry is an oligopoly. D. the (four-firm) concentration ratio is 25 percent. A.
13. The main purpose of the antitrust laws is
A. to prevent the monopolization of industries. B. to eliminate both negative and positive externalities. C. to regulate natural monopolies. D. to encourage firms to produce where P > MC. A.
23. The monopolistically competitive seller maximizes profit by producing at the point where
A. total revenue is at a maximum. B. price equals marginal revenue. C. marginal revenue equals marginal cost of production. D. average costs are at a minimum. C.
21. A merger between an automobile manufacturer and a maker of automobile tires is an example of a
A. tying contract. B. conglomerate merger. C. vertical merger. D. horizontal merger. C.
37. Which of the following is directly illegal under the Sherman Act?
A. tying contracts B. price discrimination C. interlocking directorates D. price-fixing D.
23. In 2000, Microsoft was fined $2.7 billion for
A. using anticompetitive means to promote its Internet Explorer web browser. B. conspiring with Netscape and Sun to monopolize the market for Internet browsers. C. monopolizing the market for word processing software. D. deliberately pricing Windows 95 and 98 below marginal cost to monopolize the market for operating systems for personal computers. A.
19. In 2015, Google was indicted by European Union antitrust officials for
A. using its monopoly power to require all computers sold in Europe to support Google Chrome. B. using its 90 percent share of the Internet search market to favor its own price-comparison service. C. conspiring with Microsoft to ensure that Google and Microsoft products were bundled. D. using pricing algorithms to price-fix with other Internet sellers. B.
50. The antitrust laws are based on the
A. view that nonprice competition should be strictly regulated by government. B. creative destruction view of competition. C. idea that competition leads to greater economic efficiency than does a monopoly. D. view that all negative externalities should be eliminated by government action. C.
20. The basic issue in the DuPont cellophane case was
A. whether trade crossed state lines. B. defining the relevant market. C. structure versus behavior. D. the rule of reason. B.
13. The incidence of a tax pertains to
A. who actually bears the burden of a tax. B. the progressiveness or regressiveness of tax rates. C. the degree to which it alters the distribution of income. D. how easy it is to evade the tax. A.
18. Responsibility for enforcing the antitrust laws rests
A. with the Interstate Commerce Commission. B. solely with the Department of Justice. C. with both the Department of Justice and the Federal Trade Commission. D. solely with the Federal Trade Commission. C.
