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Multiple Choice Quiz
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1
The causal view of the industry believes that
A)market structure causes firm behavior, which causes market performance.
B)firm behavior causes market structure, which causes market performance.
C)market performance causes market structure, which causes firm behavior.
D)All of the above can occur according to the casual view.
2
As a general rule of thumb, the U.S. Department of Justice may scrutinize a proposed merger if the Herfindahl-Hirschman index is
A)above 1,000.
B)below 1,000.
C)above 1,800.
D)below 1,800.
3
A firm has a marginal cost of $22 and charges a price of $35. The Lerner index for this firm is:
A).37.
B).63.
C).59.
D).26.
4
The industry elasticity of demand for gadgets is -3, while the elasticity of demand for an individual gadget manufacturer's product is -3. Based on the Rothschild approach to measuring market power, we conclude that
A)there is significant monopoly power in this industry.
B)the industry is competitive.
C)the Herfindahl index for this industry is 3.
D)the Herfindahl index for this industry is -3.
5
The concentration and Herfindahl-Hirschman indices computed by the U.S. Bureau of Census must be interpreted with caution because
A)they may understate the actual level of concentration in markets served by foreign firms.
B)national data tends to overstate the degree of concentration when the relevant markets are local.
C)the definition of product classes used to define an industry affects the results.
D)All of the above.
6
In regards to perfect competition, which of the following is true?
A)The HHI tends to be close to 10,000.
B)The Rothschild index tends to be close to zero.
C)The four-firm concentration ratio tends to be close to one.
D)None of the above.

Use the following information for questions 7, 8, and 9.
There are five firms in an industry with sales at $6 million, $6 million, $4 million, $4 million, and $4 million, respectively.

7
The four-firm concentration ratio is:
A)0.75.
B)0.79.
C)1.20.
D)0.83.
8
The HHI is
A)1,805.
B)925.
C)2,083.
D)2,600.
9
What is the proper conclusion that we can draw from the calculated four-firm concentration ratio and HHI?
A)Both measures indicate that the industry is not perfectly competitive.
B)The four-firm measure suggests the industry is highly competitive, while the HHI suggests the industry is relatively uncompetitive.
C)The four-firm measure suggests the industry is relatively uncompetitive, while the HHI suggests the industry is highly competitive.
D)Both measures indicate the industry is served by a monopoly.
10
If you were to read in the business section of your local newspaper that a recent merger has led to an industry having a HHI measure equal to 13,000, what is the proper conclusion?
A)The market is now monopolistically competitive.
B)The market is now close to perfectly competitive.
C)The market is now served by a monopoly.
D)The newspaper has made a mistake in reporting the HHI measure.
11
A conglomerate merger is the integration of
A)two firms that produce components for a single product.
B)the production of similar products into a single firm.
C)different product lines into a single firm.
D)None of the above.
12
According to the "feedback critique,"
A)the conduct of firms affects firm performance.
B)the performance of firms affects market structure.
C)market structure affects firm conduct.
D)All of the above.
13
An industry is comprised of eight (8) firms, each with an equal market share. What is the 4-firm concentration ratio of this industry?
A).125.
B).16.
C).50.
D).32.
14
Which of the following industry structures would you expect to have the lowest Rothschild index score?
A)Monopoly.
B)Perfect competition.
C)Monopolistic competition.
D)Oligopoly.
15
The index that measures the potential for a change in social welfare by examining the effect of small changes in industry output is the
A)Dansby-Willig performance index.
B)Lerner index.
C)Rothschild index.
D)Herfindahl index.







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