1. "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal." This provision is clearly recognizable as part of

a. the Celler-Kefauver Antimerger Act of 1950.
b. the Robinson-Patman Act of 1936.
c. the Federal Trade Commission Act of 1914.
d. the Clayton Act of 1914.
e. the Sherman Act of 1890.

2. Systematic governmental efforts designed to limit the market power of monopolies and to create conditions under which competition can flourish are called

a. antitrust policy.
b. consent agreements.
c. exclusive contracts.
d. profit regulation.
e. tying contracts.

3. The Clayton Act of 1914 makes a number of business practices illegal, provided they "substantially lessen competition or tend to create a monopoly." The list of named practices does not include

a. the acquisition of competing companies' stock.
b. false and deceptive advertising.
c. interlocking directorates.
d. price discrimination.
e. tying contracts.

4. If three firms hold equal market shares in a market, the Herfindahl Index, which is used to measure the degree of concentration in an industry, equals

a. 33.
b. 100.
c. 3,333.
d. 5,200.
e. 8,710.

5. A Herfindahl Index of 7,674 is consistent with four firms operating in a market and holding respective market shares of

a. 80, 10, 5, 5.
b. 25, 25, 25, 25.
c. 50, 28, 13, 9.
d. 87, 10, 2, 1.
e. 43, 25, 25, 7.

6. Which of the following statements about the Herfindahl Index is correct?

a. If the index for a given industry is less than 1,000, the industry is considered competitive.
b. If the index for a given industry is less than 2,000, the industry is considered competitive.
c. If the index for a given industry is between 2,000 and 4,000, the industry is considered moderately concentrated.
d. If the index for a given industry is more than 1,000, the industry is considered concentrated.
e. If the index for a given industry is less than 2,000, the industry is considered competitive.

7. According to the U.S. Antitrust Division's policy guidelines, a contemplated merger between two firms is likely to be challenged if the pre-merger Herfindahl Index

a. lies between 1,000 and 1,800 points and the merger raises the index by at least 50 points.
b. lies between 1,000 and 1,800 points and the merger raises the index by at least 100 points.
c. lies above 1,800 and the merger raises the index by at least 10 points.
d. lies above 1,800 and the merger raises the index by at least 30 points.
e. is correctly described by (a) and (c).

Table 24.1

Industry	Firm #1	Firm #2	Firm #3	Firm #4	Firm #5
A	90	5	5	-	-
B	70	10	10	10	-
C	50	20	15	15	-
D	30	25	17	23	5
E	10	5	28	31	26

8. Consider Table 24.1. It gives percentage market shares for firms in five industries. Under the circumstances, which of the following statements is correct?

a. Based on the Herfindahl Index, the Antitrust Division would approve a merger between firms #1 and #3 in industry A.
b. Based on the Herfindahl Index, the Antitrust Division would approve a merger between firms #3 and #4 in industry B.
c. Based on the Herfindahl Index, the Antitrust Division would approve a merger between firms #1 and #3 in industry C.
d. Based on the Herfindahl Index, the Antitrust Division would approve a merger between firms #2 and #4 in industry D.
e. Based on the Herfindahl Index, the Antitrust Division would disapprove a merger between firms #1 and #2 in industry E.

9. Given two firms with respective market shares of x and y, their merger will raise the Herfindahl Index by

a. x times y.
b. x divided by y.
c. x plus y.
d. 2xy.
e. (x + y)/2.

10. A merger in a given industry between two firms that operate at different stages of the production process and that are, therefore, related as suppliers and users of each other's products, is called

a. a conglomerate merger.
b. a horizontal merger.
c. a tying agreement.
d. a vertical merger.
e. an interlocking directorate.

11. Which among the following mergers is likely to be conglomerate?

a. A steel company merges with coal and iron ore mining companies as well as construction firms.
b. A steel company merges with car rental companies and tobacco processors.
c. A steel company in California merges with other steel companies in New Jersey.
d. An office supply company merges with an office supply chain.
e. An oil company merges with pipeline, shipping, and railroad companies as well as refineries and gas stations.

12. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. In the absence of government regulation, the profit-maximizing owners of this firm would choose to produce quantity 0L.
b. In the absence of government regulation, the profit-maximizing owners of this firm would set a price of 0E = MF.
c. In the absence of government regulation, the profit-maximizing owners of this firm would take in total revenue of 0EFM.
d. In the absence of government regulation, the profit-maximizing owners of this firm would earn zero economic profit.
e. All of the above, except (a).

13. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. This firm's profit-maximizing output choice, in the absence of government regulation, is bound to be inefficient, as evidenced by the fact that B exceeds D.
b. This firm's profit-maximizing output choice, in the absence of government regulation, is bound to be inefficient, as evidenced by the fact that B exceeds J.
c. This firm's profit-maximizing output choice, in the absence of government regulation, is bound to be inefficient, as evidenced by the fact that H exceeds K.
d. This firm's profit-maximizing output choice, in the absence of government regulation, is bound to be inefficient, as evidenced by the fact that N exceeds M.
e. None of the above.

14. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. The fact that this firm is a natural monopoly is evidenced by the continually declining market demand line as output rises.
b. The fact that this firm is a natural monopoly is evidenced by the continually declining marginal revenue line as output rises.
c. The fact that this firm is a natural monopoly is evidenced by the continually declining long-run average total cost as output rises.
d. The fact that this firm is a natural monopoly is evidenced by the horizontal marginal cost line that shows constant marginal cost regardless of output.
e. The fact that this firm is a natural monopoly is evidenced by marginal revenue lying below price for all possible quantities demanded.

15. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. If the government wanted to remove the inefficiency implied by the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0C = LD.
b. If the government wanted to remove the inefficiency implied by the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0E = MF.
c. If the government wanted to remove the inefficiency implied by the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0G = NH.
d. If the government wanted to remove the inefficiency implied by the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0I = NK.
e. None of the above statements makes any sense.

16. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. If the government wanted to remove the inefficiency implied by the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0C = LD.
b. If the government wanted to eliminate the economic profit associated with the profit-maximizing behavior of this firm's private owners, it would have to set a price of 0C = LD.
c. If the government did succeed in eliminating all vestiges of inefficiency with the help of price regulation, the firm would have an incentive to let costs rise.
d. If the government did succeed in eliminating the firm's economic profit with the help of profit regulation, the firm would incur an economic loss and go bankrupt.
e. None of the above.

17. Consider Figure 24.1. It provides relevant data for an industry in which economies of scale are so pronounced that only one firm can survive. Which of the following statements about this natural monopoly is correct?

a. If the government were to engage in output regulation and ordered the production of half the profit-maximizing output 0L, this firm would still earn a positive economic profit (because P > LRATC).
b. If the government were to engage in output regulation and ordered the production of half the profit-maximizing output 0L, there would still be inefficiency (because P > MC).
c. If the government were to engage in output regulation and ordered the production of half the profit-maximizing output 0L, the firm could still increase its profit by lowering costs via the provision of lower-quality output.
d. If the government were to engage in output regulation and ordered the production of half the profit-maximizing output 0L, the firm could still increase its profit by lowering costs via technical advances.
e. All of the above statements are correct.

18. Potential problems with the government's regulation of natural monopolies include which of the following?

a. Incentives can be distorted; why, for example, would a firm want to hold costs down if regulators insist on zero economic profit?
b. It is unclear what constitutes "restraint of trade."
c. It is unclear how narrowly or broadly a "market" is to be defined.
d. High concentration ratios may be meaningless in the face of stiff competition from abroad.
e. All of the above and more.

19. The length of time, sometimes years, that it takes government regulators of a natural monopoly to review its performance, and possibly adjust its price, is known as regulatory lag. Its existence can be explained

a. by the fact that cost information is not easy to determine, even for the natural monopoly itself.
b. by the fact that cost information can be rigged by the natural monopoly, which prevents regulators from getting a true picture of the firm.
c. by both of the above and the fact that regulators may have little incentive to get accurate information because they are likely to keep their jobs and prestige, even if they work with false information.
d. by the fact that regulation by government inevitably makes a problem worse.
e. by the fact that solutions come with costs as well as benefits.

20. According to the capture theory of regulation,

a. no matter what the motive for the initial regulation and the establishment of the regulatory agency, eventually the agency will be controlled by the special interests of the very industry that is being regulated.
b. regulators are seeking to do, and will do through regulation, what is in the best interest of society at large; regulators are the "captured servants" of the public.
c. regulators are seeking to do, and will do through regulation, what is in their best interest; namely, enhance their power and the size of their agency's budget.
d. the regulators of natural monopolies will, sooner or later, become social regulators, concerned with economy-wide issues, such as the health and safety of consumers or workers.
e. the costs of most types of government regulation exceed the benefits.