Ch. 13 Antitrust and Regulation

72. As shown in Exhibit 13-1, an unregulated cable television monopolist would operate at which point on its demand curve:

A.

47. For which pair of firms would a merger be horizontal?

Barnes and Noble and Wordsworth Booksellers

15. Which of the following would be illegal under the Robinson-Patman Act?

ExxonMobil sells gas at a higher wholesale price to independent gas retailers than to ExxonMobil retailers.

67. Which of the following statements is true?

Government regulation is economically justifiable for a natural monopoly.

59. Joe works in a factory producing chemicals used in paint manufacturing. If he is concerned about the effects of the chemicals that he works with on his health, he should contact which regulatory agency?

Occupational Safety and Health Administration (OSHA)

31. The landmark antitrust case which established that size alone is not sufficient to prove an antitrust violation is the:

U.S. Steel case.

19. Which of the following would be illegal under the Clayton Act?

Xerox will only sell its copy and print machines if buyers agree to also buy a service contract.

94. Imperfect information is:

a market failure that prevents consumers from making rational decisions.

9. Campbell Soup agrees to sell its brand to a grocery chain only if the chain also agrees to buy a minimum number of cases of its V-8 juice. This is an example of:

a tying agreement.

38. The government's court case against Microsoft is an example of:

antitrust enforcement.

69. The task of economic regulation is to:

approximate the results of the competitive market.

64. Consider a regulated natural monopoly. If the regulatory commission wants to establish a fair-return price, then it should set a price ceiling where the demand curve crosses the monopoly's long-run:

average cost curve.

49. Paul Bergen and Virginia Clancy each own a 100-acre soybean farm in Soyburg, Illinois. Together they grow 1/1000th of 1 percent of the nation's soybeans. When they merge, it will:

be a horizontal merger.

27. The rule of reason was an antitrust law guideline that emphasized the importance of ____ over ____.

behavior; size

30. During this century, court decisions on antitrust have:

changed from rule of reason, to per se, and back to rule of reason.

42. A merger between two firms with unrelated products is a

conglomerate merger.

88. Imperfect knowledge about hazardous effects of a product will likely result in

consumers paying too high a price for a product.

91. In Exhibit 13-4, the makers of Healthy Hands Lotion discovered that the lotion can cause skin reactions, but it doesn't inform the buyers. A news investigation reveals the reactions. When the market reacts to this new information, the price will

decrease from $5.00 to $4.00 and the quantity will decrease from 50 to 40 units.

95. When consumers in a market become fully informed of negative information about the product, we can expect the

demand curve for the product to shift to the left.

13. The Federal Trade Commission is charged with:

investigating unfair and deceptive trade practices.

75. As shown in Exhibit 13-1, if regulators follow a fair return pricing strategy, the price will be:

$15, the quantity will be 80, and the profit will be $0.

90. In Exhibit 13-4, the makers of Healthy Hands Lotion discovered that the lotion can cause skin reactions, but it doesn't inform the buyers. While the market experiences imperfect information, the price and quantity will be

$5.00 and 50 units.

58. Which of the following lists the historical regulation of industries in chronological order?

1. transportation and telecommunications, 2. occupational health, consumer safety, and the environment, 3. finance and healthcare

54. Deregulation, especially for the transportation and telecommunication industries, was the trend in the United States during the:

1980s and it means elimination or phasing out of government restrictions on economic activity.

24. In which of the following cases was the firm a natural monopoly at the beginning of the case but no longer a natural monopoly when the case resolved?

AT&T case

40. According to the per se rule, when would the courts find a monopoly in violation of the Sherman Antitrust Act?

Always-monopoly is per se illegal under the rule of reason.

74. As shown in Exhibit 13-1, regulators might follow a fair return pricing strategy and require the cable television monopolist to operate at point:

C.

16. The purchase of the assets of one steelmaker by another steelmaker might be a violation of the:

Celler-Kefauver Act.

10. Interlocking directorates are illegal under the ____ whether or not the effect may be to substantially lessen competition.

Clayton Act

8. Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal?

Clayton Act.

73. As shown in Exhibit 13-1, regulators might follow a marginal cost pricing strategy and require the cable television monopolist to operate at point:

D.

60. Martha lives near a paper mill. If she is concerned about the effects of the air pollution from the plant, she should contact which regulatory agency?

Environmental Protection Agency (EPA)

56. Which of the following imposed regulation on its industry?

Interstate Commerce Act of 1887.

26. According to the rule of reason, when would the courts find a monopoly in violation of the Sherman Antitrust Act?

Only when the monopoly engaged in illegal business practices.

14. If a firm offers quantity discounts or special promotional allowances only to favored distributors and the effect is to substantially lessen competition, then it is in violation of the:

Robinson-Patman Act.

57. An economist would be most likely to advocate for regulation under which of the following scenarios?

Scientific evidence suggested regulation was an appropriate solution.

33. In which antitrust case did the Supreme Court begin to apply the per se rule to determine whether a firm was in violation of the Sherman Antitrust Act?

The Alcoa case.

17. How did the Celler-Kefauver Act (CK Act) affect the nation's antitrust policy?

The CK Act strengthened the nation's approach to merger enforcement by amending the Clayton Act. Under the CK Act, purchasing assets with the cash of another company was a potential antitrust violation.

29. Under a rule of reason approach, which of the following would be legal in the United States?

The merger of Paco's Taqueria and Maria's Mexican Bistro, independent restaurants in the unconcentrated sit-down restaurant market.

11. Which of the following describes a tying contract?

The seller of one product requires the buyer to purchase some other product(s).

86. Which of the following is not an example of government intervention to correct for imperfect information?

enforcement of the Clayton Act

12. Ersatz Kreme will sell its filling to Hunky Donuts only if Hunky Donuts agrees not to buy filling from other suppliers. This is an example of:

exclusive dealing.

32. In the 1945 Alcoa antitrust case, the Court found Alcoa:

guilty because its firm size was a per se violation of antitrust laws.

55. In the United States, regulation increased steadily in the early 1970s in the areas of

health, safety, and the environment.

41. A merger between firms that compete in the same market is called a:

horizontal merger.

23. The rule of reason refers to the interpretation of the courts that dominant firms should be broken up because of their:

illegal business practices, not based on their market dominance alone.

92. A market failure that causes overconsumption of a product because the sellers know something negative about a product that the buyers do not know is called

imperfect information.

6. The most important weakness of the Sherman Antitrust Act was that:

it wasn't specific about the types of acts which would violate the law.

36. Under a per se approach to the antitrust laws,

large size alone can be an antitrust violation.

62. Government regulators can achieve efficiency for a natural monopoly by setting a price ceiling equal to the intersection of the demand curve and the:

marginal cost curve.

66. The government will have to subsidize a natural monopoly in the long run if regulators choose to pursue:

marginal cost pricing

71. A local cable company has its rates set at P = $15 by a regulatory commission. Its current output is 10,000 households and its costs are as follows: ATC = $17; AVC = $14; and MC = $15. From this, we can tell that this is:

marginal cost pricing, and the firm earns an economic loss.

70. The argument in favor of regulation for natural monopolies, externalities, and cases of imperfect information is:

market failure.

34. The per se rule refers to the interpretation of the courts that dominant firms should be broken up because of their:

market share of dominance.

4. The Sherman Antitrust Act of 1890 is the federal antitrust law that prohibits:

monopolization and conspiracies to restrain trade.

68. Economic regulation occurs when:

monopoly is the optimal market structure.

5. To obtain a conviction for price fixing under the Sherman Antitrust Act, the government needs to prove:

only that an attempt to fix prices was made.

87. Deficient information on unsafe products can cause:

overconsumption of a product.

37. When the court determines that a firm's size alone is sufficient to find that it violated antitrust laws, this criterion is called:

per se.

2. The practice of firms temporarily reducing prices in order to eliminate competition is called:

predatory pricing.

78. In Exhibit 13-3, if this is an unregulated monopoly firm, the price and output which would maximize profits are:

price = $10; output = 25.

80. In Exhibit 13-3, if this industry is regulated and the regulatory commission wants price to be set equal to marginal cost, the proper price and output combination to be set is:

price = $3; output = 50.

79. In Exhibit 13-3, if this industry is regulated and the regulatory commission wants revenue to just cover cost, the proper price and output combination to be set is:

price = $5; output = 40.

3. Officers of five large building-materials companies meet and agree than none of them will submit bids on government contracts lower than an agreed-upon level. This is an example of:

price fixing.

96. When consumers in a market become fully informed of negative information about the product, we can expect the

price of the product to decrease.

45. A horizontal merger is one in which the merging firms:

produce the same good in the same industry.

7. The primary purpose of antitrust legislation is to:

protect the competitiveness of U.S. business.

51. The Interstate Commerce Commission (ICC) was established in 1887 to regulate:

railroads and all surface transportation.

53. During the first phase of regulation in the United States (from 1887 to the Great Depression), the primary target of regulation was the:

railroads.

52. In the late 1970s and 1980s a movement toward deregulation took place because

regulation was leading to higher production costs, which caused widespread dissatisfaction.

82. In Exhibit 13-3, if this industry is regulated and the regulatory commission sets price equal to average total cost, then:

revenue would just be sufficient to cover costs.

35. The per se rule was an antitrust law guideline that emphasized ____ over ____.

size; behavior

77. If a good causes a positive externality, regulation might take the form of a

subsidy.

65. If regulation imposes marginal cost pricing on a natural monopoly, then the monopoly will:

suffer persistent economic losses.

85. If a good causes a negative externality, regulation might take the form of a

tax.

61. Marginal cost pricing is a system of pricing in which the price charged equals the marginal cost of:

the last unit produced and the firm suffers a loss unless the government gives the firm a subsidy.

89. Suppose Well-Made Pharmaceuticals knows that its newest prescription drug can cause severe side-effects, but it doesn't inform the users of the prescriptions about these side-effects. When the side-effects become public knowledge after an investigation,

the price will decrease.

44. A conglomerate occurs when:

the products of the merging firms were not related in any manner before the merger.

25. Although U.S. Steel controlled nearly 75 percent of the domestic iron and steel industry, in 1920 the Supreme Court ruled that the firm was not in violation of the Sherman Antitrust Act because

there was no evidence of abusive behavior. The Court applied the rule of reason in this case.

1. Firms that place their assets in the custody of a board of trustees is called a(n):

trust.

76. Products that result in external benefits for society require regulation to correct for

underproduction.

46. A merger between two firms that have a supplier-purchaser relationship is:

vertical.

63. Regulatory commissions may focus on establishing a "fair-return" price to be charged by a monopolist. Under this policy, the monopolist would earn:

zero economic profits.

21. The Utah Pie case was brought under which of the following laws?

The Robinson-Patman Act.

22. In the Utah Pie case, the economic effect of the Supreme Court decision was to:

discourage competition by national competitors in the Salt Lake City market.

20. The antitrust case against IBM was dropped after 13 years of litigation because

new companies began competing in the market and the political environment changed to a less restrictive interpretation of antitrust laws.

28. Under a rule of reason approach, an act is illegal:

only if it is shown to result in an anticompetitive outcome.

83. Which of the following is not one of the three basic situations in which regulation is imposed?

price fixing

93. Economists believe that government regulation to prevent companies from making false or deceptive claims may be justified when:

the equilibrium quantity and price are higher than they would be if consumers had complete information.

81. In Exhibit 13-3, if this industry is regulated and the regulatory commission sets price equal to marginal cost, then:

the firm would suffer losses.

43. A vertical merger occurs when:

the firms stood in a buyer-seller relationship before the merger.