Question : 11) Consider an industry that made up of nine firms : 1387922

11) Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows:

a.Firm A: 30%

b.Firm B: 20%

c.Firms C, D and E: 10% each

d.Firms F, G, H and J: 5% each

What is the value of the Herfindahl-Hirschman Index and how is the industry categorized?

A) 1700; moderately concentrated

B) 1425; moderately concentrated

C) 1600; moderately concentrated

D) 2600; highly concentrated

12) A possible advantage of a horizontal merger for the economy is that

A) the merging firms could avoid losses.

B) the merged firm might reap economies of scale which could translate into lower prices.

C) the degree of competition in the industry will be intensified.

D) the government stands to collect more corporate income tax revenue.

13) The lawsuit the Justice Department brought against Apple regarding the pricing of e-books for its iPad is an example of attempts by the government

A) to prevent vertical mergers which would significantly reduce competition.

B) to prevent horizontal mergers which would significantly reduce competition.

C) to regulate a natural monopoly by establishing government-regulated prices.

D) to keep firms from artificially restricting competition to raise prices.

Article Summary

Arguing that a merger would lead to higher prices, reduced service, and significantly less competition, the Justice Department and attorneys general from 6 states and the District of Columbia filed a lawsuit in August to challenge the pending merger of American Airlines and US Airways. The lawsuit took some by surprise as the Justice Department has in recent years approved the mergers of Delta with Northwest and United with Continental. The European Union approved the merger in August, and American and US Airways had hoped to complete the merger by September.

Source: Even Perez, “US government seeks to block American-US Airways merger,” CNN.com, August 13, 2013.

14) Refer to the Article Summary. The standards used by the Department of Justice and the FTC to evaluate a potential merger such as the one between American Airlines and US Airways are based on market concentration as determined by the

A) Herfindahl-Hirschman Index.

B) Clayton Antitrust Act.

C) Anti-Collusion Task Force.

D) Robinson-Patman Act.

15) Refer to the Article Summary. A merger between two competitors such as American Airlines and US Airways may ultimately be approved by the Department of Justice and the FTC if the two companies can substantiate ________ as a result of the merger.

A) increases in revenue for the merged company

B) an increase in the HHI to over 1,800

C) decreases in marginal revenue for the merged company

D) increases in economic efficiency

16) Natural monopolies in the United States are generally regulated by

A) the Federal Trade Commission.

B) the Department of Justice.

C) local or state regulatory commissions.

D) the Department of Commerce.

17) If a natural monopoly regulatory commission sets a price where marginal cost is equal to demand,

A) the firm would earn monopoly profits.

B) economic efficiency would not be achieved.

C) the firm would incur a loss.

D) the firm would break even.