BE 301 EXAM 3 QUESTIONS AND ANSWERS
Economies of Scale - CORRECT ANSWER✅✅Firm's per-unit costs decrease as output increases;
producing more lowers average total cost.
Economies of Scope - CORRECT ANSWER✅✅Cost savings from producing multiple products together
rather than separately.
Market Power - CORRECT ANSWER✅✅The ability to successfully charge a price above competitive
levels or above marginal cost.
Market Power & Elasticity - CORRECT ANSWER✅✅Market power is higher when demand is more
inelastic; fewer substitutes allow firms to raise prices.
Market Power & Mergers - CORRECT ANSWER✅✅Mergers can increase market power by reducing
competition; reviewed by DOJ and FTC.
Horizontal Merger - CORRECT ANSWER✅✅Merger between two firms in the same industry
(competitors).
Vertical Merger - CORRECT ANSWER✅✅Merger between firms at different stages of production
(supplier + buyer).
Merger Guidelines (DOJ/FTC) - CORRECT ANSWER✅✅If HHI < 1500: merger not challenged. HHI 1500-
2500: if increase >100, may be challenged. HHI >2500: if increase >100 may be challenged, >200 will be
challenged.
Four-Firm Concentration Ratio - CORRECT ANSWER✅✅Percentage of total market output accounted
for by the top four firms.
Herfindahl-Hirschman Index (HHI) - CORRECT ANSWER✅✅Sum of squared market shares of all firms;
measures market concentration.
Economies of Scale - CORRECT ANSWER✅✅Firm's per-unit costs decrease as output increases;
producing more lowers average total cost.
Economies of Scope - CORRECT ANSWER✅✅Cost savings from producing multiple products together
rather than separately.
Market Power - CORRECT ANSWER✅✅The ability to successfully charge a price above competitive
levels or above marginal cost.
Market Power & Elasticity - CORRECT ANSWER✅✅Market power is higher when demand is more
inelastic; fewer substitutes allow firms to raise prices.
Market Power & Mergers - CORRECT ANSWER✅✅Mergers can increase market power by reducing
competition; reviewed by DOJ and FTC.
Horizontal Merger - CORRECT ANSWER✅✅Merger between two firms in the same industry
(competitors).
Vertical Merger - CORRECT ANSWER✅✅Merger between firms at different stages of production
(supplier + buyer).
Merger Guidelines (DOJ/FTC) - CORRECT ANSWER✅✅If HHI < 1500: merger not challenged. HHI 1500-
2500: if increase >100, may be challenged. HHI >2500: if increase >100 may be challenged, >200 will be
challenged.
Four-Firm Concentration Ratio - CORRECT ANSWER✅✅Percentage of total market output accounted
for by the top four firms.
Herfindahl-Hirschman Index (HHI) - CORRECT ANSWER✅✅Sum of squared market shares of all firms;
measures market concentration.
