Question : 41) The Herfindahl-Hirschman Index one factor used to determine whether : 1244622

41) The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed. Which of the following statements regarding the value of the Index for a given industry is true?

A) If a merger would result in an Index value less than 1,000, the merger would not be challenged.

B) If a merger would result in an Index value of 1,000 or more, the industry would be considered a monopoly and the merger would be challenged.

C) If a merger resulted in an Index of between 1,000 and 1,800, the industry would be considered competitive and the merger would not be challenged.

D) If a merger would increase the Index by 100, the industry would be considered a monopoly and the merger would be challenged.

42) According to the Department of Justice merger guidelines, a proposed merger between two firms may be challenged if the post-merger Herfindahl-Hirschman Index

A) lies between 1,000 and 1,800 and the merger raises the Index by 50 points.

B) lies between 1,000 and 1,800 and the merger raises the Index by more than 100 points.

C) lies above 1,800 and the merger raises the Index by less than 50 points.

D) lies below 1,000 and the merger raises the Index by 100 points.

43) Consider an industry that is made up of six firms with the following market shares: Firm A – 50%, Firm B – 20%, Firms C and D – 10% each, and Firms E and F – 5% each. What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

A) 2,500; mildly concentrated

B) 3,150; highly concentrated

C) 8,100; highly concentrated

D) 10,000; effectively competitive

44) If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit. How are prices usually set in natural monopoly markets in the United States?

A) Each natural monopoly is made a public franchise. The public franchise is then required to set its price equal to its marginal cost.

B) Natural monopolies are privately owned, but prices proposed by the firms must be approved by the Antitrust Division of the Department of Justice.

C) Natural monopolies are privately owned and allowed to set their own prices. Government regulation of the firms would result in greater deadweight losses.

D) Local or state regulatory commissions usually set prices for natural monopolies.

Figure 10-16

Figure 10-16 shows the market demand and cost curves facing a natural monopoly.

45) Refer to Figure 10-16. Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit maximizing owners. If regulators require that the firm produces the economically efficient output level, what is this level and what price will be charged?

A) Q4 units; P4

B) Q1 units; P4

C) Q1 units; P1

D) Q3 units; P3

46) Refer to Figure 10-16. Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

A) This results in a misallocation of resources.

B) The marginal cost of producing the last unit sold exceeds the marginal benefit.

C) The firm will sustain persistent losses and will not continue in business in the long run.

D) The firm will break even.

47) Refer to Figure 10-16. If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

A) Q1 units; P4

B) Q1 units; P1

C) Q5 units; P3

D) Q3 units; P3

48) Refer to figure 10-16. In the absence of any government regulation, the profit-maximizing owners of this firm will produce ________ units and charge a price of ________.

A) Q0 units; P0

B) Q1 units; P1

C) Q1 units; P4

D) Q3 units; P3

49) A product’s price approaches its marginal cost as market concentration increases.

50) A vertical merger is one that takes place between two companies producing different goods or services for one specific finished product.