Chapter#7

1. The "feedback critique" view of the industry believes that

a. Market structure causes firm behavior, which causes market performance.

b. Firm behavior causes market structure, which causes market performance.

c. Market performance causes market structure, which causes firm behavior.

d. There is no one-way causal link among market structure, conduct and

performance.

2. As a general rule of thumb, the U.S. Department of Justice is unlikely to scrutinize a

proposed merger if the Herfindahl-Hirschman index is

a. Above 1,000.

b. Below 1,000.

c. Above 1,800.

d. Below 1,800.

3. A firm has a marginal cost of $56 and charges a price of $64. The Lerner index for this firm

is.

a. 0.143.

b. 0.125.

c. 0.56.

d. 0.35.

4. The industry elasticity of demand for X is -3, while the elasticity of demand for an individual

manufacturer's of product X is -12. Based on the Rothschild approach to measuring market

power, we conclude that

a. There is significant monopoly power in this industry.

b. The industry is competitive.

c. The four-firm concentration ratio for this industry is 0.25.

d. The Herfindahl index for this industry is 2500.

5. The concentration and Herfindahl-Hirschman indices computed by the U.S. Bureau of

Census must be interpreted with caution because

a. They may overstate the actual level of concentration in markets served by foreign

firms.

b. National data tends to understate the degree of concentration when the relevant

markets are local.

c. The definition of product classes used to define an industry affects the results

d. All of the above.

6. In regards to monopoly, which of the following is true?

a. The HHI tends to be close to 10,000.

b. The Rothschild index tends to be close to zero.

c. The four-firm concentration ratio tends to be close to zero.

d. None of the above.

7. Which of the following industry structures would you expect to have the highest Rothschild

index score?

a. Monopoly.

b. Perfect competition.

c. Monopolistic competition.

d. Oligopoly.

8. If you were to read in the business section of your local newspaper that a recent merger has

led to an industry having a HHI measure equal to 175, what is the proper conclusion?

a. The market is now monopolistically competitive.

b. The market is now close to perfectly competitive.

c. The market is now served by a monopoly.

d. The newspaper has made a mistake in reporting the HHI measure.

9. A vertical merger is the integration of

a. Two or more firms that produce components for a single product

b. The production of similar products into a single firm.

c. Different product lines into a single firm.

d. None of the above.

10. According to the "causal view," of industry

a. The conduct of firms affects firm performance, which impacts market

structure.

b. The performance of firms affects market structure.

c. Market structure affects firm conduct.

d. None of the above.

Chapter#8

1. Which of the following is best characterized as monopoly?

a. Internet providers.

b. Retail clothing stores

c. Indiana corn farmers

d. Local electricity services.

2. For a firm producing in a perfectly competitive industry the demand is

a. perfectly elastic

b. Relatively inelastic

c. Perfectly inelastic.

d. Relatively elastic

3. You are the manager of a firm that sells its product in a competitive market at a price of

$150. Your firm's cost function is C = 125 + 5Q2. Your firm's maximum short-run profits

are

a. $0

b. $500

c. $750

d. $1000

4. Which one of the following is a potential source of monopoly power?

a. Cost complementarities.

b. The patent system

c. Economies of scope

d. All are potential sources of monopoly power.

5. Let the demand function for a product be Q = 20 - 4P. The inverse demand function of

this demand function is

a. P = 20 + 4Q

b. P = 5 – 0.25Q

c. P = 80 – 4Q.

d. P = 80 + 0.25Q.

6. Which of the following is a correct representation of a profit-maximizing monopoly

earning positive economic profits?

a. P = MR = MC, and P > AVC

b. ATC = MR, and P > AVC

c. MC = MR, and P > ATC

d. P = MC, and P > ATC.

7. One of the effects of the patent system is to

a. Reduce the rewards for research and development

b. Temporarily provide monopoly power to the patent owner.

c. Reduce the degree of monopoly power in the short term.

d. Give firms less incentive to innovate.

8. Which of the following is true regarding the long-run equilibrium relationship between

price and costs in a perfectly competitive and monopolistically competitive industry?

a. P = MC

b. P < MC

c. P = average costs

d. P > average costs.