Competition Policy
Mock Exam
Course Introduction
Competition Policy examines the legal and economic frameworks that promote fair competition in markets, prevent anti-competitive practices, and protect consumer welfare. The course covers the principles and application of antitrust laws, merger control, abuse of dominance, cartels, price fixing, and market regulation. Students will explore case studies from various jurisdictions, gaining insight into enforcement mechanisms and policy debates, and learn how competition policy impacts business strategies, market structures, and overall economic efficiency.
Recommended Textbook
Transactions and Strategies 1st Edition by
Robert J. Michaels
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Chapter 1: Reasoning With Economics: Models and Information
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Sample Questions
Q1) A simple model of information acquisition for shopping predicts that, the larger the percentage of dealers in an area seen by the typical shopper, the _____ will be the dispersion of the prices _____ relative to their average.
A)larger; the buyers pay
B)larger; the dealers quote
C)smaller; the buyers pay
D)smaller; the dealers quote
Answer: D
Q2) Heuristics economize on the mental capabilities of people.
A)True
B)False
Answer: True
Q3) Which of the following products should be sold face-to-face rather than by mass advertising?
A)Breakfast cereals
B)Health drinks
C)A pharmaceutical which can only be understood by doctors
D)A new brand of herbal cosmetics
Answer: C
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Chapter 2: Transactions and Institutions: the Building Blocks
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Q1) Which of the following is an example of market governance?
A)A firm vertically integrating backward to own the necessary inputs
B)A firm entering into a contract with input suppliers.
C)A school recruiting a part-time teacher to cover for a permanent employee who falls very ill.
D)A school requesting its permanent employees to cover for a teacher who suddenly falls ill.
Answer: C
Q2) Contracts are:
A)are command-based systems in which prices usually play a relatively small role.
B)a set of promises intended to create economic value and enforceable by a court or some other agency, such as an arbitrator.
C)are a mode of governance that facilitate the purchase and sale of standardized goods or services, often in repeated transactions.
D)economic institutions that can greatly ease the process by which a transaction moves from proposal to commitment.
Answer: B
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4
Chapter 3: Markets
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Q1) As observed in China's steel appliance market, the rise in the price of refrigerators resulted:
A)solely from an increase in the demand for refrigerators.
B)from an increase in the demand for steel from all appliance industries.
C)from a shortage of steel in the world markets.
D)from an increase in the price of steel that was the result of increased demand for refrigerators.
Answer: D
Q2) 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
Q3) The area above the supply curve and below the market price represents:
A)the consumer surplus
B)the producer surplus.
C)the deadweight loss of the producer.
D)the deadweight loss of the consumer.
Answer: B
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Chapter 4: Cost and Production
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Q1) What is a natural monopoly?
Q2) Refer to Figure .Identify the correct statement from the following.Assume that the firm is trying to maximize profit and faces a $4 market price for dolls.
A)The firm will produce 2,000 dolls per month.
B)The firm's profit declines as the firm expands production beyond 2,000 dolls per month.
C)The firm's profit rises as the firm expands production beyond 20,000 dolls per month.
D)The firm will produce 20,000 dolls per month.
Q3) An isoquant is the locus of the different combinations of inputs that produce the same level of output.
A)True
B)False
Q4) Explain how isocosts allow firms to arrive at the most efficient input mix for producing a particular level of output.
Q5) Identify the difference between the short-run and the long-run.
Q6) The slope of the total variable cost curve gives the average cost of production.
A)True
B)False
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Chapter 5: Extreme Markets I: Perfect Competition
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Q1) In a perfectly competitive market, the demand curve faced by each firm is:
A)highly inelastic.
B)perfectly elastic.
C)perfectly inelastic.
D)less elastic.
Q2) In a perfectly competitive market, buyers are completely aware of the asking prices of sellers but sellers are unaware of the bids placed by buyers.
A)True
B)False
Q3) Refer to Figure .What will be the long run effect of the increase in demand (from Q to Q ) in this market?
A)The profit earned by the firm will increase.
B)The firm will break even at the new equilibrium.
C)The loss incurred by the firm will decrease.
D)The firm will shut down completely.
Q4) State some of the policies adopted by the U.S.government to check petroleum prices.
Q5) Was the U.S.government able to control the world petroleum prices? Support your choice with suitable reasons.
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Chapter 6: Extreme Markets II: Monopoly
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Q1) The peak of the total revenue curve is achieved at the point where:
A)marginal revenue is the highest.
B)price is the highest.
C)marginal revenue is zero.
D)marginal cost is zero.
Q2) Refer to Figure .What is the monopolist's revenue when he incurs a marginal cost of $2 per unit?
A)$99
B)$88
C)$96
D)$72
Q3) A monopolist who attempts to bundle her product with one that is produced and sold in a competitive market is likely to make a smaller profit than one who does not bundle his product with such a good.
A)True
B)False
Q4) How is the profit maximizing price and output calculated for a monopolist when i) it incurs no marginal cost, and ii) when it incurs positive marginal cost? Discuss with an example.
Q5) What is tying or bundling of goods?
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Chapter 7: Between the Extremes: Interaction and Strategy
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Q1) In a Betrand price-setting duopoly model, the equilibrium output:
A)will be equal to the monopoly output.
B)will be equal to the competitive market output.
C)will lie between the monopoly and the competitive market output.
D)will be higher than the monopoly output.
Q2) The smaller the share of the fringe firms in an oligopoly market, the smaller will be the profit earned by the dominant firm.
A)True
B)False
Q3) In a price-fixing agreement amongst two oligopolists, each seller's best strategy would be to maintain the agreement, as it would leave both of them better off.
A)True
B)False
Q4) In the Stackelberg leadership model,
A)the leader earns a larger profit compared to the follower.
B)the leader charges a higher price for its output compared to the follower.
C)the follower produces a larger output compared to the leader.
D)the follower charges a lower price for its output compared to the leader.
Q5) Explain the concept of Nash equilibrium with an example.
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) 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
Q2) The difference between opportunity cost of the sellers and the valuation of the buyers is known as:
A)social cost.
B)economic value.
C)deadweight loss.
D)consumer surplus.
Q3) Which of the following contracts contain vertical restrictions that limit the transacting parties' choices but create economic value?
A)An agreement between firms to jointly invest in research and development.
B)A franchise contract specifying exclusive territory of operation.
C)A contract amongst competitive firms on an uniform pricing strategy.
D)A collusion between two oligopoly firms specifying individual production.
Q4) In a market characterized by a single seller and many buyers, when is it profitable to increase the value of a product by incurring fixed costs?
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Chapter 9: Beyond Markets; Property and Contracts
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Q1) Inclusive property rights provide an investor:
A)more options and greater incentives to avoid inefficient choices.
B)an insight to future earnings and revenue generation.
C)a definite return on the investment.
D)cost effective techniques of production leading to economies of scale.
Q2) _____ refers to an enforceable set of promises to take certain actions over the future.
A)A bond
B)A contract
C)A capitation fee
D)A collusion
Q3) Investments that are specific to a relationship (i.e.of lower value elsewhere) are considered risky and require:
A)an enforceable contract.
B)an efficient spot market.
C)high rates of return.
D)verbal commitments.
Q4) Define a contract.
Q5) What are property rights?
Q6) Why are inclusive property rights considered to be sources of wealth?
Page 11
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Chapter 10: The Economics of Contracts
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Q1) Which of the following exemplifies specific performance that a court might order from the party in breach of a contract?
A)A seller ordered to pay back the price of the commodity to the customer having failed to deliver it on-time.
B)A popular singer requested to forgo the fee for her performance at a social fund raising program.
C)The owner of a polluting factory ordered to convert his private plot into a public garden.
D)A movie director ordered to work with an actress he had previously contracted with, instead of one he later found was available for a lower price.
Q2) How does opportunistic behavior affect a contract?
Q3) 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
Q4) When does an incomplete contract prove beneficial?
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Chapter 11: Risk and Information in Contracts
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Q1) Which of the following is an example of a non-price provision in an automobile insurance contract that can reduce moral hazard?
A)A provision specifying that coverage is limited to 75 percent of the total damages caused by an accident.
B)A provision that disallows medical claims by drunk drivers involved in accidents.
C)A provision that restricts accident compensation to claims over $1,000.
D)A provision requiring that the insured car carry certain safety devices like air bags.
Q2) Which of the following is an example of a moral hazard?
A)A student committing suicide after failing in an examination.
B)A housekeeper leaving a house unlocked after insuring it against burglary.
C)An exporter delivering faulty products after receiving a certain fraction of the total payment.
D)A person deriving utility from a commodity without paying for it.
Q3) How is the utility of a gamble to a risk averse person different from that to a risk neutral person?
Q4) What is an insurance premium?
Q5) When does an insurance contract benefit both the parties?
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Chapter 12: Organizations in Concept and Practice
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Q1) A _____ puts the assets of two corporations under a common management.
A)acquisition
B)vertical integration
C)merger
D)proxy fight
Q2) What kind of problem do creditors lending funds to a sole proprietorship form of business face?
Q3) The separation of corporate ownership and control removes most executive decisions from shareholder scrutiny, but offers an efficient division of labor between persons with differing skills, goals, and wealth.
A)True
B)False
Q4) In which of the following economic activities do we commonly find a proprietor acting as a supervisor, a provider of capital, and a residual claimant?
A)A multinational bank
B)An oil exploration company
C)A small medical store
D)An aircraft manufacturer
Q5) What is a hierarchy?
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Chapter 13: Organizational Design
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Q1) When is centralization of decision-making desirable?
Q2) _____ is the only type of firm where it is possible for a person to hold all of the information that matters for all types of decisions.
A)Corporation
B)A firm where decision-making is centralized
C)Sole proprietorship
D)A firm where there is separation of ownership and management
Q3) Define an M-form organization and discuss its advantages over a U-form organization.
Q4) Which of the following is true about the differences between M-form and U-form firms?
A)As M-form firms are more diversified, it is more difficult for the management to acquire and compare information about products and locations than a U-form firm.
B)A U-form firm can better incentivize managers than M-form firms.
C)In an M-form firm the interests of executives in product or geographic divisions can be better aligned with those of shareholders compared to a U-form firm.
D)M-form firms usually operate in fewer markets than U-form firms.
Q5) How does a self-contained unit benefit a firm?
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Chapter 14: Vertical Relationships
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Q1) Refer to Figure.What would be the combined profit earned by the two monopolists if they agree to merge?
A)$48
B)$24
C)$12
D)$36
Q2) How is a firm's vertical scope determined?
Q3) When are businesses likely to outsource some of their activities?
Q4) Successive monopolies can earn larger profits by operating independently rather than working together or cooperating.
A)True
B)False
Q5) Identify the reason why U.S.Steel prefers to own iron ore mines.
A)It helps them to coordinate iron ore transport and furnace operations.
B)It reduces the company's raw material costs.
C)It helps them to inspect the quality of the ore.
D)It reduces the competition the company faces in the world steel market.
Q6) Mention the reasons behind the de-integration of American Steel producers.
Q7) Explain why the production and milling of hot steel has a high volumetric interdependence?
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Chapter 15: Employment Relationships
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Sample Questions
Q1) Options are less than perfect as instruments to induce better performance because:
A)they are most often backdated.
B)they are independent of market volatility.
C)more than 90 percent of options expire worthless.
D)executives often take risky decisions to raise the value of their options.
Q2) An important distinction between the labor market and the market for commodities is:
A)that contracts are arrived at more easily in the former.
B)the individual attributes of the buyer and seller hold far more importance in the former case.
C)that it is impossible to prevent breach of contract in the labor market.
D)that the market for commodities is a matching market while the former is not.
Q3) Refer to Table .Calculate the value of marginal product of labor when the firm hires 7 workers.
A)$24
B)$30
C)$280
D)$224
Q4) Why are most contracts incomplete?
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Chapter 16: Time, Risk and Options
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Q1) A tycoon purchasing a loss making company will install new management teams only as long as the marginal value of the additional information these teams generate is worth the cost of installing them.
A)True
B)False
Q2) Why are interest rates adjusted for inflation?
Q3) Which of the following options can be exercised upon expiration at a price equal to the average price of the underlying over its life span?
A)Average options
B)Lookback options
C)Barrier options
D)Basket options
Q4) If events A and B are independent, then Pr[A and B] will be:
A)Pr[A]÷Pr[B].
B)Pr[A]-Pr[B].
C)Pr[A]+Pr[B].
D)Pr[A]×Pr[B].
Q5) How is the optimal degree of diversification of a portfolio determined?
Q6) Why are interest rates considered to be the opportunity cost of investments?
Page 18
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Chapter 17: Conflict, Negotiation and Group Choice
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Q1) Alex's production is worth $60, Harry's is worth $40, Rob's is worth $40, and Julia's is worth $55.They decide to combine their resources and produce together.For this to be a superadditive game, which of the following conditions must hold?
A)They should be able to produce more in groups of two than what they can produce together.
B)Their combined production must exceed the total they can individually produce.
C)Their resources must be perfect substitutes.
D)Their resources must be perfect complements.
Q2) Assume that the characteristic functions for individuals 1,2, and 3 are given by V(1) = $20, V(2) = $16, and V(3) = $10 respectively, and value created by the coalition V(1,2,3) = $60.If the payoff to individual 1 is $30, and that to individuals 2 and 3 is $15 each, which of the following statements is true?
A)The given allocation is within the core.
B)2 and 3 will withdraw from the coalition.
C)2 will block the imputation.
D)This allocation is individually rational for all.
Q3) Differentiate between norms and focal points.
Q4) What is a utility possibility frontier?
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