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