Chapter 13
Antitrust and Regulation
1. The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the
a. Federal Trade Commission Act.
b. Clayton Act.
c. Sherman Antitrust Act.
d. Robinson-Patman Act.
ANS
a. Incorrect. The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the Sherman Antitrust Act.
b. Incorrect. The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the Sherman Antitrust Act.
c. Correct. The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the Sherman Antitrust Act.
d. Incorrect. The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the Sherman Antitrust Act.
2. Price discrimination that tends to lessen competition is outlawed by the
a. Sherman Act.
b. Clayton Act and amended by the Robinson-Patman Act.
c. Federal Trade Commission Act.
d. Interstate Commerce Act.
ANS
a. Incorrect. This act does not concern price discrimination.
b. Correct. Price discrimination that tends to lessen competition is outlawed by the Clayton Act and amended by the Robinson-Patman Act.
c. Incorrect. This act does not concern price discrimination.
d. Incorrect. This act does not concern price discrimination.
3. If a firm has a tying agreement with a distributor which substantially lessens competition, then it is likely to be in violation of the
a. Clayton Act.
b. Robinson-Patman Act.
c. Sherman Antitrust Act.
d. Federal Trade Commission Act.
ANS
a. Correct. If a firm has a tying agreement with a distributor which substantially lessens competition, then it is likely to be in violation of the Clayton Act.
b. Incorrect. This act does not concern tying arguments.
c. Incorrect. This act does not concern tying arguments.
d. Incorrect. This act does not concern tying arguments.
4. For many years, AT&T required customers to rent telephones from AT&T in order to receive phone service. This is an example of
a. price discrimination.
b. a tying contract.
c. an interlocking directorate.
d. exclusive dealing.
ANS
a. Incorrect. Price discrimination concerns charging different prices for the same product.
b. Correct. For many years, AT&T required customers to rent telephones from AT&T in order to receive phone service. This is an example of a tying contract.
c. Incorrect. An interlocking directorate concerns serving on the board of directors for competing companies.
d. Incorrect. Exclusive dealing concerning a condition of sale that excludes a competitor.
5. Interlocking directorates are illegal under the whether or not the effect may be to substantially lessen competition.
a. Clayton Act
b. Robinson-Patman Act
c. Sherman Antitrust Act
d. Federal Trade Commission Act
ANS
a. Correct. Interlocking directorates are illegal under the Clayton Act whether or not the effect may be to substantially lessen competition.
b. Incorrect. This act does not concern interlocking directorates.
c. Incorrect. This act does not concern interlocking directorates.
d. Incorrect. This act does not concern interlocking directorates.
6. Which of the following was not illegal under the original Clayton Act?
a. tying contracts
b. interlocking directorates
c. merger by purchase of assets with cash
d. All of the above answers are illegal under the original Clayton Act.
ANS
a. Incorrect. This activity was illegal under the original Clayton Act.
b. Incorrect. This activity was illegal under the original Clayton Act.
c. Correct. This activity was outlawed in the Cellar-Kefauver Act.
d. Incorrect. Answer c. was not illegal under the original Clayton Act.
7. During this century, court decisions on antitrust have
a. changed from per se to rule of reason,and back to per se.
b. changed from rule of reason to per se and back to rule of reason.
c. always emphasized per se.
d. always emphasized rule of reason.
ANS
a. Incorrect. During this century, court decisions on antitrust have changed from rule of reason, to per se, and back to rule of reason.
b. Correct. During this century, court decisions on antitrust have changed from rule of reason, to per se, and back to rule of reason.
c. Incorrect. During this century, court decisions on antitrust have changed from rule of reason, to per se, and back to rule of reason.
d. Incorrect. During this century, court decisions on antitrust have changed from rule of reason, to per se, and back to rule of reason.
8. The importance of the Federal Trade Commission Act of 1914 is that it
a. set up an independent antitrust agency with the power to bring court cases.
b. strengthened the law against mergers.
c. strengthened the law against price discrimination.
d. All of the above answers are correct..
ANS
a. Correct. The importance of the Federal Trade Commission Act of 1914 is that it set up an independent antitrust agency with the power to bring court cases.
b. Incorrect. The Federal Trade Commission Act did not concern this activity.
c. Incorrect. The Federal Trade Commission Act did not concern this activity.
d. Incorrect. Answers b. and c. are incorrect.
9. The antitrust legislation designed to help small stores survive competition with large retail chains was the
a. FTC Act.
b. Sherman Antitrust Act.
c. Celler-Kefauver Act.
d. Robinson-Patman Act.
ANS
a. Incorrect. This act does not concern competition among small stores and retail chains.
b. Incorrect. This act does not concern competition among small stores and retail chains.
c. Incorrect. This act does not concern competition among small stores and retail chains.
d. Correct. The antitrust legislation that was designed to help small stores survive competition with large retail chains was the Robinson-Patman Act.
10. What antitrust legislation that made it illegal for a firm to pay cash for a competitor’s patents, plant, and equipment?
a. Sherman Antitrust Act
b. Cellar-Kefauver Ac.
c. Robinson-Patman Act
d. Clayton Act
ANS
a. Incorrect. This act does not concern firms that pay cash for a competitor’s assets.
b. Correct. The antitrust legislation that made it illegal for a firm to pay cash for a competitor’s patents, plant, and equipment was the Cellar-Kefauver Act.
c. Incorrect. This act does not concern firms that pay cash for a competitor’s assets.
d. Incorrect. This act does not concern firms that pay cash for a competitor’s assets.
11. The per se rule was introduced in which case?
a. Standard Oil
b. IBM
c. American Tobacco Trust
d. Alcoa
ANS
a. Incorrect. This case was based on the rule of reason.
b. Incorrect. This case was based on the rule of reason.
c. Incorrect. This case was based on the rule of reason.
d. Correct. The per se rule was introduced in the Alcoa case.
12.The Interstate Commerce Commission (ICC) was established in 1887 to regulate
a. banking.
b. railroads and all surface transportation.
c. nationwide advertising.
d. interstate sales of food and drugs.
ANS
a. Incorrect. The Interstate Commerce Commission (ICC) was established in 1887 to regulate railroads and all surface transportation.
b. Correct. The Interstate Commerce Commission (ICC) was established in 1887 to regulate railroads and all surface transportation.
c. Incorrect. The Interstate Commerce Commission (ICC) was established in 1887 to regulate railroads and all surface transportation.
d. Incorrect. The Interstate Commerce Commission (ICC) was established in 1887 to regulate railroads and all surface transportation.
13. The Civil Aeronautics Board (CAB) was
a. established in 1934 and reorganized in 1984.
b. established in 1938 and eliminated in 1984.
c. established in 1938 and reorganized in 1991.
d. never a regulatory agency.
ANS
a. Incorrect. The Civil Aeronautics Board (CAB) was established in 1938 and eliminated in 1984.
b. Correct. The Civil Aeronautics Board (CAB) was established in 1938 and eliminated in 1984.
c. Incorrect. The Civil Aeronautics Board (CAB) was established in 1938 and eliminated in 1984.
d. Incorrect. The Civil Aeronautics Board (CAB) was established in 1938 and eliminated in 1984.
Exhibit 7 Public utility monopolist
14. As shown in Exhibit 7, an unregulated monopolist would operate at point
a. W.
b. Y.
c. Z.
d. None of the above answers are correct.
ANS
a. Correct. At point W, MR = LRMS and positive economic profit is maximized because price at point X is above LRAC.
b. Incorrect. At point Y, price = LRAC and zero economic profit is earned because price = LRAC.
c. Incorrect. At point z, price = LRMC and negative profit is earned because the price is below LRAC.
d. Incorrect. Answer a. is correct.
Exhibit 8 A monopolist
15. In Exhibit 8, if this industry is regulated and the regulatory commission wants no excess profits or losses (normal economic profit) to occur, the proper price and output combination to be set is
a. price = $5; output=20.
b. price = $4; output=30.
c. price = $3; output=20.
d. price = $2; output=50.
ANS
a. Incorrect. This price exceeds LRAC and firm earns positive economic profit.
b. Correct. This price = LRAC and firm earns normal economic profit.
c. Incorrect. This price is below LRAC and the firmincurs a loss.
d. Incorrect. This price is below LRAC and the firm incurs a loss.
16. In Exhibit 8, if this industry is regulated and the regulatory commission sets price equal to long run marginal cost (LRMC), then
a. this firm would earn excess profit.
b. price would equal LRAC.
c. the firm would suffer losses.
d. marginal revenue would just be sufficient to cover marginal costs for all units.
ANS
a. Incorrect. At a price of $2, the monopolist will produce and sell 50 units, which is below LRAC and the firm suffers losses.
b. Incorrect. At a price of $2, the monopolist will produce and sell 50 units, which is below LRAC and the firm suffers losses.
c. Correct. At a price of $2, the monopolist will produce 50 units, which is below LRAC and the firm suffers losses.
d. Incorrect. At a price of $2, the monopolist will produce 50 units, which is below LRAC and the firm suffers losses. And MR is less than LRMC.
17. Under the Clayton Act, which of the following was illegal, even if it was not shown to lessen competition substantially?
a. price discrimination
b. tying contract
c. horizontal mergers by stock acquisition
d. interlocking directorates
ANS
a. Incorrect. Price discrimination is illegal if shown to lessen competition substantially.
b. Incorrect. Tying is illegal if shown to lessen competition substantially.
c. Incorrect. Horizontal mergers were illegal if shown to lessen competition substantially.
d. Correct. Interlocking directorates are illegal regardless of whether the effect is to lessen competition substantially.
18. Under the Clayton Act,
a. the same person can sit on the boards of directors of competing corporations.
b. mergers are illegal.
c. monopoly is illegal.
d. the Sherman Act was repealed.
ANS
a. Correct. The same person cannot sit on the board of a competing corporations.
b. Incorrect. Mergers are illegal if competition is lessened substantially.
c. Incorrect. Monopoly is illegal under the Sherman Act.
d. Incorrect. The Sherman Act has not been repealed.
19. Which of the following is concerned primarily with price discrimination?
a. Sherman Act
b. Clayton Act
c. Robinson-Patman Act
d. Celler-Kefauver Act
ANS
a. Incorrect. The Sherman Act does not address price discrimination.
b. Incorrect. In addition to price discrimination, the Clayton Act is concerned with other illegal business behavior.
c. Correct. The Robinson-Patman Act is concerned primarily with price discrimination.
d. Incorrect. The Cellar-Kefauver Act is concerned with making it illegal to merge by buying the assets of a rival.
20. Imperfect knowledge about a product can cause
a. excessive resources devoted to producing a product.
b. consumers paying too high a price for a product.
c. overconsumption of a product.
d. All of the above answers are true.
e. None of the above answers a.-c. are true.
a. Incorrect. With imperfect knowledge consumers can not make rational decisions (see Exhibit 4).
b. Incorrect. With imperfect knowledge consumers can not make rational decisions (see Exhibit 4).
c. Incorrect. With imperfect knowledge consumers can not make rational decisions (see Exhibit 4).
d. Correct. With imperfect knowledge consumers can not make rational decisions (see Exhibit 4).
e. Incorrect.With imperfect knowledge consumers can not make rational decisions (see Exhibit 4).
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