Ch 28 Econ
As a general rule of thumb, a firm is considered to have monopoly power if
It's shade of the relevant market is 70 percent or more
In the figure above, a regulated monopolist allowed to earn the fair rate of return would be producing output level
Q3
Gov policy that attempts to prevent collusion among the sellers of a product and attempts to prevent restraint of trade is known as
Antitrust policy
Prices will be close to the competitive level in contestable markets becaUe
Any economic profits induce entrants immediately
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 must take into account the preferences of legislators, producers and consumers is the
share-the-gains
Which of the following statements can correctly be made out about social regulation?
1 only
For an industry to be considered a contestable market, the firms in the industry must be
Able to enter and leave the industry easily
Which of the following would be most likely to promote competitive pricing of products?
Clayton Act
Which of the following is an example of a regulatory agency concerned with social regulation?
Consumer Product Safety Commission
One type of economic regulation often used in the US by various public utility commissions allows prices to reflect only the actual cost of production and no monopoly profits. This type of economic regulation is known as
Cost of service
In the short run, deregulations has been followed by
Disruptions
Which of the following statements regarding economic regulation is TRUE?
Economic regulation deals with prices firms change
If the government decides to regulate the monopolist in the figure above using marginal cost pricing, the regulated price and quantity become
F and Q3, respectively
The regulatory agency most concerned with false advertising is the
FTC
The theory of contestable markets holds tjat
Industries made up of a few firms still must price competitively
In the long run, deregulation usually results in
Lower prices
An unregulated natural monopolist would produce where
MR=MC
In the figure above, if the firm is operating at output level Q2, which of the following statements is FALSE?
Prices and costs lower than equivalent firm forced by regulators to charge ATC pricing
In the figure above, an unregulated monopolist will set its level of output and price at
Q1 and A, respectively
In the figure above, an unregulated natural monopolist will produce output level
Q2
In the figure above, a regulation requiring marginal cost pricing would force the firm to produce at output level
Q4
Which antitrust law is sometimes called the "Chain Store Act"?
Robinson-Patman Act
The primary anti-trust statute in the United States is the
Sherman Anti-Trust
One common short- run effect of deregulation is
The exit of High-cost producers from the country
In some cases, social regulation may alter individuals' behavior. For example, there is evidence to indicate that as more automobile safety regulations have been introduced, more individuals have begun to drive recklessly. This phenomenon is known as
The feedback effect
When trying to determine if a firm has monopoly power, courts in the US tend to examine
The firm's percentage share
The price charged by a monopolist is socially inefficient because the price
exceeds the true marginal cost of the resources used
The FTC as amended prohibits
Unfair competitive practices
A firm that has taken advantage of economies of scale and has expanded to become the only producer in the market is
a natural monopoly
Which of the following is NOT classified as a natural monopoly?
a supplier of lumber and wood burning products
According to the capture hypothesis, it appears that regulators eventually end up
adopting policies that benefit the firms being regulated
Which of the following is NOT exempt from antitrust laws?
airlines
Regulators usually encourage natural monopolists to engage in
average cost pricing
The hypothesis that regulators eventually are controlled by the regulated firms and their special interests is the
capture hypothesis
If a market is highly contestable, you would expect that there would be
cost curves that are consistent with technological efficiency
In the figure above, a regulated natural monopolist producing an output of Q3 would be
earning zero economic profits
With average cost pricing, the monopolist
earns a fair rate of return for its shareholders
In the figure above, the area of the rectangle ABHG represents the natural monopolist's
economic profits
The contestable market theory assumes that
entry to and exit from the industry is relatively easy and inexpensive
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 was that
it failed to explicitly state which activities were illegal
One criticism of social regulation is that
it imposes relatively greater costs on smaller firms, creating anticompetitive effects
The "capture" in the capture hypothesis occurs because
regulators usually have been or will be associated with the industries they regulate
Which of the following industries does NOT have the characteristics of a natural monopoly?
long distance telephone companies
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
The benefits of social regulation are
often difficult to measure
All of the following are exempt from antitrust laws EXCEPT
oil companies
A natural monopoly owes its existence to
persistent declining long-run average costs as scale increases
Deregulations is the
phasing out of past regulations
One goal of rate-of-return regulation is the prevention of
predatory competition
Regulators employ average cost pricing instead of marginal cost pricing because
price must be high enough to cover all opportunity costs if the firm is to stay in business
Which of the following would NOT be included among the short-run effects of deregulation?
prices that approximate marginal costs
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 would
produce less output than if the industry was purely competitive rather 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
According to the capture hypothesis,
regulators eventually support the views of the regulated firms
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 shown as
social regulation
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 an industry
Suppose that a regulatory agency imposed 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 regulators
The difference between cost-of-service regulation and rate-of-return regulation is that
the former sets prices based on actual costs, and the latter focuses on setting prices such that the firm earns a normal rate of return
The argument which suggests that regulators balance the interests of firms, consumers, ad legislators is called
the share-the-gains
With a natural monopoly,
there are large economies of scale relative to demand
A natural monopoly that is not regulated will choose to produce
where marginal revenue equals marginal cost