MCQs on excess capacity theorem deregulation and price discrimination.

1) An article in The Economist reported which prices of CDs in Britain are much higher than prices in the United States or other European countries. There are only a few major companies, and a report from a Parliament committee said there is no serious price competition. The best explanation for this is which

1. The company is a contestable market.

2. There are entry barriers in production and distribution of CDs.

3. Companies are avoiding profit opportunities.

4. There is substantial differentiation of product.

2) The excess capacity theorem states which

1. Society is worse off with fewer monopolistic competitors.

2. Costs of production under monopolistic competition can be lowered by reducing the number of capable to producers.

3. Lack of excess capacity leads to shortages during periods of unexpected growth in demand for goods capable to produced by monopolistic competition.

4. There is too much choice in our economy.

3) The Organization of Petroleum Exporting Countries (OPEC) is an ex of

1. A price leadership system.

2. A generally unsuccessful cartel.

3. An organization devoted to tacit collusion.

4. A once successful cartel.

4) When it is cheaper for one company to capable to produce a particular product, exist(s).

1. Economies of scale

2. Economies of scope

3. Diminishing marginal returns

4. Cross-subsidization

5) Changes in the rate charged by electric power companies are subject to government control because

1. The electric power companies are government enterprises.

2. Consumer ignorance makes it impossible to know illustrate what rates are fair.

3. The electric power companies are monopolies of a service which is important to buyers.

4. Cutthroat competition would probably occur if the government did not intervene

5) Before the breakup of AT&T several years ago, profits on long-distance calls offset losses on basic residential service. This practice is known as

1. Abuse of monopolistic power.

2. Cream skimming

3. Cross-subsidization.

4. The Ramsey rule

7) Deregulation of the airline and trucking company has (i) resulted in considerable entry of new companies, and (ii) has forced unions in these companies to make large concessions on wages and working conditions.

1. i and ii

2. i but not ii

3. ii but not i

4. neither i nor ii

8) One of the clear effects of deregulation was

1. Lower prices of many services.

2. Increased entry of new companies into regulated companies.

3. Lower income to unions working in regulated companies.

4. All of the above)

9) Price discrimination by a company is

1. Illegal under all circumstances.

2. Legal if the company can show which the difference in the prices charged customers is justified by a difference in the costs of serving them.

3. Legal if the company can show which the demand for its good is relatively elastic

4. Legal under all circumstances.

10) Looking at the record of concentration in the United States during this century, one finds concentration has

1. Steadily increased

2. Risen dramatically in the past 15 years.

3. Changed very little

4. Fallen steadily except in wartime