Chapter: Limiting Market Power: Regulation and Antitrust
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1. When deregulation requires that new competitors be sold access to an old utility's transmission lines, the pricing problem involves
a. increasing scale economies.
b. rate averaging.
c. access to bottleneck facilities.
d. privatization.
2. If average cost is declining,
a. marginal cost must be below average cost.
b. firms would go bankrupt if all prices were set equal to marginal costs.
c. marginal cost may be declining or increasing.
d. All of the above are correct.
3. One of the clear effects of deregulation was
a. lower prices of many services.
b. increased entry of new firms into regulated industries.
c. lower income to unions working in regulated industries.
d. all of the above.
4. The Sherman Act of 1890 prohibits
a. price discrimination.
b. trusts and the monopolization of trade.
c. special discounts.
d. one large firm from purchasing another.
5. Retail pharmacies have been complaining that they cannot make profits on the sale of drugs because drug companies sell drugs to hospitals, doctors, nursing homes, and HMOs at substantial discounts. For example, 100 tablets of benzodiazepine costs pharmacies $40.18; hospitals are charged only $4.99. If pharmacists want to sue to end this practice,
a. the relevant law is the Federal Trade Commission Act.
b. the relevant law is the Robinson-Patman Act.
c. the relevant law is the Sherman Antitrust Act.
d. the relevant law is the Clayton Act.
6. Looking at the record of concentration in the United States during this century, one finds
a. concentration has steadily increased
b. concentration has risen dramatically in the past 15 years.
c. concentration has changed very little.
d. concentration has fallen steadily except in wartime.
7. The federal government has the power to investigate and to try to block
a. only voluntary mergers between firms.
b. only hostile takeovers.
c. only friendly takeovers.
d. any combining of the ownership of previously independent firms that increases concentration.
8. One of the factors behind the increase in merger activity in the 1980s was
a. a loosening of the merger guidelines in the early 1980s.
b. a tightening of competition in the late 1970s.
c. a new understanding that monopoly is allocatively efficient.
d. a rejection of competition as a viable business structure.
9. In the case of AMI v. IBM, AMI sought to obtain
a. a new patent on technology which would threaten IBM.
b. a market niche that was protected from competitive pressures.
c. a restraint on IBM to prevent usage of new technology by IBM.
d. a higher market share of new computer sales.
10. Which of the following is a criticism of monopolies?
a. They produce too much output.
b. They charge higher prices than more competitive firms.
c. They generate innovation too fast for competitors to keep up with them, hence reducing competition.
d. All of the above.
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