Question 1

Suppose the government regulates a natural monopoly by making the firm charge marginal cost.In order for the firm to make zero economic profits the government must pay a subsidy to the firm.What amount should this subsidy be?

Accepted Answer

A)  a subsidy of (Average Total Cost - marginal cost)  per unit
B)  a subsidy of (Average Variable Cost - marginal cost)  per unit
C)  a subsidy of (quantity*price)  per unit
D)  a subsidy of (quantity*marginal cost)  per unit

Question 2

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of predatory pricing.

Accepted Answer

A) True 
 B)False

Question 3

As the number of sellers in an oligopoly grows, an oligopolistic market looks more and more like a competitive market.

Accepted Answer

A) True 
 B)False

Question 4

A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.

Accepted Answer

A) True 
 B)False

Question 5

The information obtained from a retail outlet can be considered a:

Accepted Answer

A)  private good
B)  cooperative good
C)  collective good
D)  public good

Question 6

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly has no incentive to exit the industry.

Accepted Answer

A) True 
 B)False

Question 7

A legitimate business reason for companies to merge is not to reduce competition but to:

Accepted Answer

A)  increase costs through less efficient joint product
B)  increase costs through more efficient joint product
C)  reduce costs through less efficient joint product
D)  reduce costs through more efficient joint product

Question 8

A common solution to the monopoly problem is for government agencies to regulate prices.

Accepted Answer

A) True 
 B)False

Question 9

If regulators want to allow monopolists to keep some of the benefits from lower costs in the form of higher profit:

Accepted Answer

A)  marginal-cost pricing is required
B)  a departure from marginal-cost pricing is required
C)  public ownership of monopolies is required
D)  application of the Trade Practices Act is required

Question 10

The Australian law that controls mergers and prevents monopolists from abusing their market power is the Competition and Consumer Act 2010.

Accepted Answer

A) True 
 B)False

Question 11

As the number of sellers in an oligopoly grows, an oligopolistic market looks less and less like a competitive market.

Accepted Answer

A) True 
 B)False

Question 12

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

A)  resale price maintenance
B)  tying
C)  cost-plus pricing
D)  free riding

Question 13

Economists usually prefer private ownership to public ownership of natural monopolies because private owners have an incentive to:

Accepted Answer

A)  maximise cost as long as they reap part of the benefit in the form of lower profit
B)  minimise cost as long as they reap part of the benefit in the form of lower profit
C)  maximise cost as long as they reap part of the benefit in the form of higher profit
D)  minimise cost as long as they reap part of the benefit in the form of higher profit

Question 14

Explain the practice of resale price maintenance and discuss why it is controversial.

Accepted Answer

Resale price maintenance is a requiremen...

Question 15

Transparent pricing may help a cartel to sustain high prices.

Accepted Answer

A) True 
 B)False

Question 16

Why is doing nothing sometimes considered an appropriate strategy to deal with monopoly?

Accepted Answer

Government regulation to try to limit th...

Question 17

Tying can be thought of as a form of price discrimination.

Accepted Answer

A) True 
 B)False

Question 18

Some shops may provide a lot of information to a customer at a high cost to the store.If the customer then buys the product cheaper from a different store that does not provide this information, a free-rider problem emerges.A possible solution to this problem is:

Accepted Answer

A)  resale price maintenance
B)  cost-plus pricing
C)  tying
D)  marginal-cost pricing

Question 19

What is resale price maintenance, predatory pricing and tying?

Accepted Answer

Resale price maintenance is when a whole...

Question 20

Government-run monopolies may lead to undesirable outcomes in the form of:

Accepted Answer

A)  special interest groups that attempt to block cost reductions
B)  customer and taxpayer losses when the monopoly operates inefficiently
C)  the political system as the only avenue of recourse for customers
D)  all of the above

Exam 18: Competition Policy

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly has no incentive to exit the industry.

Correct AnswerverifiedShow Answer

The Australian law that controls mergers and prevents monopolists from abusing their market power is the Competition and Consumer Act 2010.

Correct AnswerverifiedShow Answer

If regulators want to allow monopolists to keep some of the benefits from lower costs in the form of higher profit:

Correct AnswerverifiedShow Answer

A common solution to the monopoly problem is for government agencies to regulate prices.

Correct AnswerverifiedShow Answer

Suppose the government regulates a natural monopoly by making the firm charge marginal cost.In order for the firm to make zero economic profits the government must pay a subsidy to the firm.What amount should this subsidy be?

Correct AnswerverifiedShow Answer

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Correct AnswerverifiedShow Answer

Why is doing nothing sometimes considered an appropriate strategy to deal with monopoly?

Correct AnswerverifiedGovernment regulation to try to limit th...View AnswerShow Answer

As the number of sellers in an oligopoly grows, an oligopolistic market looks more and more like a competitive market.

Correct AnswerverifiedShow Answer

The information obtained from a retail outlet can be considered a:

Correct AnswerverifiedShow Answer

Some shops may provide a lot of information to a customer at a high cost to the store.If the customer then buys the product cheaper from a different store that does not provide this information, a free-rider problem emerges.A possible solution to this problem is:

Correct AnswerverifiedShow Answer

Government-run monopolies may lead to undesirable outcomes in the form of:

Correct AnswerverifiedShow Answer

Economists usually prefer private ownership to public ownership of natural monopolies because private owners have an incentive to:

Correct AnswerverifiedShow Answer

Explain the practice of resale price maintenance and discuss why it is controversial.

Correct AnswerverifiedResale price maintenance is a requiremen...View AnswerShow Answer

A government can impose a tax on a regulated monopolist to address the problems associated with marginal-cost pricing.

Correct AnswerverifiedShow Answer

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of predatory pricing.

Correct AnswerverifiedShow Answer

Tying can be thought of as a form of price discrimination.

Correct AnswerverifiedShow Answer

Transparent pricing may help a cartel to sustain high prices.

Correct AnswerverifiedShow Answer

What is resale price maintenance, predatory pricing and tying?

Correct AnswerverifiedResale price maintenance is when a whole...View AnswerShow Answer

A legitimate business reason for companies to merge is not to reduce competition but to:

Correct AnswerverifiedShow Answer

As the number of sellers in an oligopoly grows, an oligopolistic market looks less and less like a competitive market.

Correct AnswerverifiedShow Answer

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Government regulation to try to limit th...
View Answer

Correct Answer
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Resale price maintenance is a requiremen...
View Answer

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Resale price maintenance is when a whole...
View Answer

Correct Answer
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