CEA Market Structures and Competition 4

Question 1

Which antitrust standard evaluates a business practice by weighing its pro-competitive benefits against its anticompetitive harms?

Accepted Answer

Rule of reason

Answer

The rule of reason requires courts to balance competitive benefits and harms rather than automatically condemning certain practices as the per se rule does.

Question 2

A two-part tariff as a form of price discrimination involves:

Accepted Answer

Setting a fixed entry fee plus a per-unit usage price

Answer

A two-part tariff charges consumers a lump-sum fee for access and then a per-unit price, allowing the seller to capture some consumer surplus through the entry fee.

Question 3

When the four-firm concentration ratio (CR4) approaches 100%, the market is best described as:

Accepted Answer

Highly concentrated with oligopolistic or monopolistic characteristics

Answer

A CR4 near 100% means the top four firms control virtually all market output, indicating a highly concentrated structure consistent with oligopoly or monopoly.

Question 4

Predatory pricing is considered anticompetitive when a dominant firm:

Accepted Answer

Sets prices below cost to drive out rivals and later raise prices to earn monopoly profit

Answer

Predatory pricing involves deliberately pricing below cost to eliminate competition, with the intent to later recoup losses through supracompetitive prices.

Question 5

In a perfectly contestable market, even a monopolist will price:

Accepted Answer

At marginal cost because the threat of hit-and-run entry disciplines pricing

Answer

Contestability theory argues that if entry and exit are costless (no sunk costs), the threat of entry forces the incumbent to price at marginal cost despite being a monopolist.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Market Structures and Competition 4