Antitrust Economics
Exam Materials
Course Introduction
Antitrust Economics explores the economic principles and analytical tools used to evaluate competition policy and antitrust enforcement. The course examines market structures, monopoly power, collusion, mergers, and practices such as price discrimination and predatory pricing, providing students with the frameworks necessary to understand how firms behaviors impact market efficiency and consumer welfare. Students will analyze real-world cases involving the application of economic theory to antitrust investigations, considering both legal and policy perspectives. Emphasis is placed on empirical methods used to assess market power and the competitive effects of business practices and mergers.
Recommended Textbook
Transactions and Strategies 1st Edition by
Robert J. Michaels
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17 Chapters
1179 Verified Questions
1179 Flashcards
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Page 2
Chapter 1: Reasoning With Economics: Models and Information
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Sample Questions
Q1) Decision makers who try their best for rationality but are constrained by limited information and processing abilities are referred to as:
A)irrational.
B)partially rational.
C)boundedly rational.
D)perfectly rational.
Answer: C
Q2) How is positive economics different from normative economics?
Answer: Positive economics describes and analyzes things as they are (or as objectively as they can be seen).Normative economics is about how things ought to be (it explicitly acknowledges the researcher's values).
Q3) An elimination heuristic makes the choice on the basis of all the categories in which the events differ.
A)True
B)False
Answer: False
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Chapter 2: Transactions and Institutions: the Building
Blocks
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Sample Questions
Q1) In the early twentieth century, general stores in the upper Midwest had more power over prices because:
A)they acted as intermediaries between farmers and buyers.
B)the transportation network was bad, leaving farmers and buyers with no alternatives except the general stores in small towns.
C)inventories at the general stores were low and demand was high.
D)stockouts were a chronic problem and there was little variety.
Answer: B
Q2) Prices play a smaller role in _____, in contrast to other modes of governance like _____ and _____.
A)hierarchies; markets; contracts
B)contracts; hierarchies; markets
C)markets; hierarchies; contracts
D)etiquette; markets; contracts
Answer: A
Q3) What is the marginal cost rule of specialization?
Answer: The marginal cost rule of specialization states that an individual/economy should specialize in the production of the good in which the individual's/country's marginal cost of production is lower.
Page 4
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Chapter 3: Markets
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Sample Questions
Q1) Suppose a consumer is willing to pay a maximum of $45 for a brand of perfume whose price increases from $37 to $41.What will be the impact of this price rise on the consumer surplus?
A)Consumer surplus will increase by $8.
B)Consumer surplus will decline by $8.
C)Consumer surplus will increase by $4.
D)Consumer surplus will decline by $4.
Answer: D
Q2) Which of the following is an effect of paper recycling on pulpwood?
A)Recycling leads to an increase in acreage devoted to pulpwood.
B)Recycling leads to a decrease in acreage devoted to pulpwood.
C)Recycling increases the demand for pulpwood.
D)Recycling increases the market price of pulpwood.
Answer: B
Q3) Refer to Figure. What will be the equilibrium price of a coupon in this market?
A)$4
B)$2
C)$1
D)$6
Answer: B
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Chapter 4: Cost and Production
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Sample Questions
Q1) Burkes Inc.should stop production in the short run if the market price of its product is less than its average total cost of production.
A)True
B)False
Q2) The market price of the product produced by Jones Inc., is $6 per unit, which is higher than the average cost of $4 per unit at the profit maximizing output level.The average variable cost of production is $3.5 per unit.If demand for its product declines due to introduction of cheaper substitutes and the market price of the product falls to $3.8 per unit, which of the following statements will be true?
A)The firm will close down in the short run.
B)The firm will continue production as long as the market price is above average variable cost.
C)The firm will continue production as long as the market price exceeds fixed cost.
D)The firm will minimize it losses by producing where average variable cost equals $3.8.
Q3) What is a production function?
Q4) Define opportunity cost.
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Chapter 5: Extreme Markets I: Perfect Competition
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Sample Questions
Q1) Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?
A)The long-run supply curve of land suitable for corn farming will be perfectly inelastic.
B)The long-run supply curve of land suitable for corn farming will be perfectly elastic.
C)The long-run supply curve of land suitable for corn farming will be less elastic than the short-run supply curve.
D)The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve.
Q2) Refer to Figure .What impact will the increase in raw material cost have on the long-run equilibrium price level?
A)The equilibrium price level will be stable at P0 and the firms will break even.
B)The equilibrium price level will fall below P0 and the firms will incur a loss.
C)The equilibrium price level will rise above P0 and the firms will break even.
D)The equilibrium price level will rise above P0 and the firms will earn profit.
Q3) Discuss the conditions that define perfect competition.
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Chapter 6: Extreme Markets II: Monopoly
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Sample Questions
Q1) Refer to Table .If the monopolist bundles the two goods, such that they are no longer available individually, what is the maximum price he can charge for the bundle and what will be his profit?
A)The highest price he can charge for the bundled good is $23 which earns him a profit of $38.
B)The highest price he can charge for the bundled good is $28 which earns him a profit of $48.
C)The highest price he can charge for the bundled good is $26 which earns him a profit of $44.
D)The highest price he can charge for the bundled good is $21which earns him a profit of $34.
Q2) When a monopolist's marginal cost of production is zero:
A)the deadweight loss is reduced.
B)production is lower than if marginal cost were positive.
C)the price charged is higher than if marginal cost were positive.
D)maximizing profit is same as maximizing revenue.
Q3) Why does rent-seeking behavior lead to deadweight loss?
Q4) What are the main differences between a monopolist and a perfectly competitive firm?
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Chapter 7: Between the Extremes: Interaction and Strategy
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Sample Questions
Q1) Refer to Figure .Assume that in the long run new firms enter the market lowering the total cost incurred by the fringe firms below the same incurred by the dominant firm.Which of the following situations will arise?
A)The fringe supply will rotate leftward and downward reducing its profit.
B)The dominant firms market share and profit will both increase.
C)The dominant firm will be totally displaced by the fringe.
D)The fringe's market power will decrease.
Q2) In the long run, even if new fringe firms enter the oligopoly market, the dominant firm's profit will remain unaltered.
A)True
B)False
Q3) Refer to Table .What will be the Nash equilibrium if there is no interaction between the two students?
A)Student A will confess while Student B will remain silent.
B)Student B will confess while Student A will remain silent.
C)Both the students will confess.
D)Both the students will remain silent.
Q4) How does a dominant firm try to prevent new competitors from entering the oligopoly market?
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) Assume that a product upgrade strategy adopted by a microwave oven manufacturer increases his marginal cost by $1.50.If the strategy also increases the demand for the product by $3.50 per unit, total economic value will increase.
A)True
B)False
Q2) Explain the difference between the per se and "rule of reason" standards of the antitrust laws
Q3) When an innovation spreads among producers, the earlier adopters enjoy longer-lived streams of profit before the market reaches its new long-run equilibrium.
A)True
B)False
Q4) Large firms that invest in specific assets which cannot easily be redeployed to other uses or locations, may be able to protect their profits for longer than if they do not make such investments.
A)True
B)False
Q5) How is economic value created during transactions between buyers and sellers?
Q6) What are the benefits of a franchise contract?
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Chapter 9: Beyond Markets; Property and Contracts
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Sample Questions
Q1) To prevent radio interference and crowding of geostationary satellites, governments are working to replace the earlier first-come first-served system with auctions that will allocate equipment and radio frequencies to high bidders.
A)True
B)False
Q2) Assume that the market for executive travel is perfectly competitive.If the availability of time-sharing reduces transaction costs and the owner's cost of negotiating for a single trip, which of the following situations must occur?
A)The hours of flight available will increase.
B)The hours of flight available will decrease.
C)The cost of flying will remain steady.
D)The cost of flying will increase.
Q3) Which of the following exemplifies inefficient legal assignment of rights with high transaction costs?
A)Agreement between an orchard farmer and a beekeeper.
B)LoJack installation in cars to prevent car theft.
C)The Huntington Beach oil wells.
D)Installation of smog control in cars.
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Chapter 10: The Economics of Contracts
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Sample Questions
Q1) In which of these situations is vertical integration most likely?
A)A cargo distribution company's vertical integration into storage.
B)An airline's vertical integration into aircraft design and manufacture.
C)A coal miner's vertical integration into thermal power generation.
D)An airline's vertical integration into food production.
Q2) Which of the following is a problem encountered in a transaction involving a principal/agent relationship?
A)Absence of monitoring and supervision
B)Excessive dependence on forecasts and expectations
C)High investment in industry specific assets
D)Government interference and market volatility
Q3) Mention the different aspects of specificity of an asset.
Q4) If parties to a contract can anticipate the court's decision in the event of a dispute with some degree of certainty:
A)opportunistic behavior will never be detected.
B)opportunistic behavior will be partially detected.
C)there will be less room for opportunism.
D)only one of the parties will be able to act opportunistically.
Q5) What are specific assets?
Q6) Under which circumstances does vertical integration become useful?
Page 12
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Chapter 11: Risk and Information in Contracts
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Sample Questions
Q1) Mention some of the ways in which the problem of asymmetric information can be reduced.
Q2) Which of the following problems associated with asymmetric information can be avoided by using a product warranty?
A)Lemons problem
B)Problem of adverse selection
C)Moral Hazard
D)Problem of blind sight
Q3) Assume that the utility function of an individual is represented as U = W - 0.001W; where W (his present wealth) = $250,000.He considers investing in a gamble which would double his wealth if he wins but still leave him with $250,000 if he loses.Given that his probability of winning is 0.6, calculate his expected utility of taking the bet.
A)157 units
B)250 units
C)207.11 units
D)224.3 units
Q4) Mention some of ways in which insurers control the problem of moral hazard.
Q5) When does an insurance contract benefit both the parties?
Q6) What are the disadvantages of a standard form contract?
Page 13
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Chapter 12: Organizations in Concept and Practice
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Sample Questions
Q1) Risk-averse people prefer to hold assets whose returns are positively correlated.
A)True
B)False
Q2) Which of the following risks cannot be hedged by an insurance?
A)Exports damaged during shipment
B)Theft during movement of goods
C)An electrical fire at a warehouse
D)Decreased sales resulting from poor salesmanship
Q3) Independent workers face difficulties in arriving at choices for all of the following reasons, EXCEPT:
A)difference in investment responsibilities for their equipment.
B)difference in attitudes toward risk.
C)difference of opinion regarding a new strategy's probability of success.
D)difference in their transaction costs.
Q4) A person acting as a supervisor as well as a residual claimant:
A)attempts to make value-maximizing investment decisions.
B)aims to maximize a firm's sales.
C)facilitates maximum investment in capital goods.
D)reduces risk of opportunism.
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Chapter 13: Organizational Design
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Sample Questions
Q1) Refer to Figure .Which of the following statements is true regarding A, B, and C in this structure?
A)They can each function as stand-alone firms.
B)They must have similar substructures.
C)They are different functional departments within the organization.
D)They have no authority to take final decisions.
Q2) Centralization of decision-making in a firm is a good idea when:
A)the people who produce the information also have decision-making skills.
B)all the information comes from internal sources.
C)the incentives of the decision-makers is not aligned with the firm's share holders. D)those who have the relevant information are not equipped to analyze it.
Q3) An organization chart reveals all the formal and informal alliances between the various levels and departments within the organization.
A)True
B)False
Q4) What is the principal difference between a U-form and an M-form organization?
Q5) Can information life-span be a determining factor in deciding which organization structure is superior?
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Chapter 14: Vertical Relationships
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Sample Questions
Q1) Does U.S.Steel prefer to own coal mines? Give reason for your answer.
Q2) _____ is a monthly payment made by a franchisee to the franchisor usually a certain percentage of the former's gross revenue.
A)Royalty
B)Annuity
C)Contingent fee
D)Capitation fee
Q3) _____ and _____ are major factors in de-integration, which act in opposite directions.
A)Vertical restraints; opportunism
B)Uncertainty; volumetric interdependence
C)Asset specificity; uncertainty
D)Volumetric interdependence; vertical restraints
Q4) The maximum price pipelines can charge for distributing gas:
A)is determined in a monopolistic market.
B)depends on the market demand and supply.
C)is set by the federal government.
D)is always above the legal minimum.
Q5) Explain why the production and milling of hot steel has a high volumetric interdependence?
Page 16
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Chapter 15: Employment Relationships
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Sample Questions
Q1) Why are most contracts incomplete?
Q2) Jason is a salesman who gets 40 percent of the revenue he generates for his company.This is an example of payment by _____.
A)piece rent
B)fixed salary
C)executive compensation
D)share contract
Q3) How does value of marginal product (VMP) of labor determine the number of workers a competitive firm will hire?
Q4) Lisa's hourly pay increases from $8 to $10 as her performance improves.We can conclude that:
A)her marginal cost of leisure declines.
B)her opportunity cost of leisure increases.
C)her opportunity cost of work increases.
D)her marginal cost of work declines.
Q5) If wage falls below the rate determined by the market equilibrium, in which direction will it move and why?
Q6) Explain the significance of efficiency wages in solving the principal/agent relationship in employment.
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Chapter 16: Time, Risk and Options
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Sample Questions
Q1) The present value of $200 to be received after 5years at 10 percent interest is $112.2.
A)True
B)False
Q2) Which of the following alternatives signify the difference between the present value of a $150 perpetuity and 2-year $150 annuity, both discounted at 15 percent per annum.
A)The perpetuity would require an initial investment worth $100 while the annuity would require an initial investment worth $244.07.
B)The perpetuity would require an initial investment worth $1,500 while the annuity would require an initial investment worth $115.07.
C)The perpetuity would require an initial investment worth $1,000 while the annuity would require an initial investment worth $244.07.
D)The perpetuity would require an initial investment worth $100 while the annuity would require an initial investment worth $115.07.
Q3) The longer the annuity on a sum of money the lower will be its present value.
A)True
B)False
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Chapter 17: Conflict, Negotiation and Group Choice
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Sample Questions
Q1) Terry wants to sell his car and the lowest price he is willing to accept is $3,000.Alice likes the car and is willing to pay at most $4,000 for it.What is the headroom for them?
A)Prices up to $1,000
B)Price range between $3,000 and $4,000
C)Prices above $4,000
D)Prices below $3,000
Q2) The median voter model and the borda count are different names for the same methods of reaching a group decision.
A)True
B)False
Q3) When parties are risk averse, cases with more at stake are less likely to settle outside court.
A)True
B)False
Q4) Identify the disadvantage of public goods.
Q5) What aspects of bargaining can affect market outcomes?
Q6) How can the theory of the core be used to explain the functioning of oligopolistic markets.
Q7) Explain the significance of voting with suitable examples.
Page 19
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