Question 1

Which of the following statements regarding monopolistic competition is false?

Accepted Answer

A)  In the long-run equilibrium, price equals average total cost.
B)  In the long-run equilibrium, firms earn zero economic profit.
C)  In the long-run equilibrium, firms charge a price above marginal cost.
D)  In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.E) None of the above
F) A) and C)

Question 2

Advertising

Accepted Answer

A)  provides information about products, including prices and seller locations.
B)  has been proven to increase competition and reduce prices compared to markets without advertising.
C)  signals quality to consumers, since advertising is expensive.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 3

New firms will likely enter a monopolistically competitive market when price exceeds

Accepted Answer

A)  marginal revenue.
B)  average revenue.
C)  marginal cost.
D)  average total cost.E) All of the above
F) A) and D)

Question 4

The debate over the efficiency of markets in which products with brand names are sold

Accepted Answer

A)  is framed by the role of regulation in advertising.
B)  is likely to be resolved by reference to anecdotal evidence.
C)  hinges on whether consumers are rational in their choices.
D)  hinges on the effectiveness of advertising which identifies price differences.E) A) and B)
F) A) and C)

Question 5

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

Accepted Answer

A)  there are barriers to entry.
B)  all firms can eventually earn economic profits.
C)  each of the sellers offers a somewhat different product.
D)  strategic interactions between firms is vitally important.E) B) and C)
F) None of the above

Question 6

Ignoring oligopoly and focusing on the other three market structures,in which of those market structures does a profit-maximizing firm experience zero economic profit?

Accepted Answer

A)  Perfect competition only
B)  Perfect competition and monopolistic competition only
C)  Perfect competition, monopolistic competition, and monopoly
D)  The answer cannot be determined without knowing whether the market is in the long run or short run.E) All of the above
F) C) and D)

Question 7

In which of the following product markets are we likely to observe the largest amount of advertising?

Accepted Answer

A)  Markets with highly differentiated products
B)  Perfectly competitive markets
C)  Markets in which industrial products are sold
D)  Markets in which there is very little difference between different firms' productsE) B) and C)
F) A) and C)

Question 8

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Accepted Answer

Advertising provides information to cons...

Question 9

The primary claim of defenders of advertising is that it

Accepted Answer

A)  conveys information about firm profitability.
B)  is psychological rather than informational.
C)  enhances the information available to consumers.
D)  reduces the elasticity of demand for a firm's product.E) B) and C)
F) A) and D)

Question 10

Table 17-1
 
-Refer to Table 17-1.This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm.What price will this firm charge to maximize profit?

Accepted Answer

A)  $6
B)  $7
C)  $8
D)  $9E) None of the above
F) B) and D)

Question 11

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

A)  increase elasticity of demand for the advertised product.
B)  reduce the ability of markets to allocate resources efficiently.
C)  provide a signal of product quality.
D)  be useful only for psychological effects.E) B) and D)
F) A) and C)

Question 12

What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

Accepted Answer

Monopolistically competitive f...

Question 13

As developing countries make a transition to market-based economies,one of the first major capital investments is in "Western-quality" hotels.Explain why "brand-name" hotel accommodations are a critical step in attracting foreign investment.

Accepted Answer

Brand-name hotels are a critic...

Question 14

In the long run,

Accepted Answer

A)  monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power.
B)  monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down.
C)  both monopolistically competitive and perfectly competitive firms produce where P = MC.
D)  both monopolistically competitive and perfectly competitive firms produce where P = ATC.E) A) and D)
F) B) and D)

Question 15

The product-variety externality is associated with

Accepted Answer

A)  the producer surplus that accrues to incumbent firms in a monopolistically competitive industry.
B)  loss of consumer surplus from exposure to additional advertising.
C)  the consumer surplus that is generated from the introduction of a new product.
D)  the opportunity cost of firms exiting a monopolistically competitive industry.E) B) and D)
F) A) and C)

Question 16

When a firm's demand curve is tangent to its average total cost curve,the

Accepted Answer

A)  firm's economic profit is zero.
B)  firm must be earning economic profits.
C)  firm must be incurring economic losses.
D)  firm must be operating at its efficient scale.E) A) and B)
F) A) and C)

Question 17

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.

Accepted Answer

A) True 
 B)False

Question 18

When a new firm enters a monopolistically competitive market,the individual demand curves faced by all existing firms in that market will

Accepted Answer

A)  shift to the left.
B)  shift to the right.
C)  shift in a direction that is unpredictable without further information.
D)  remain unchanged.It is the supply curve that will shift.E) A) and D)
F) None of the above

Question 19

Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name) sells for $3.00,while a six-pack of Uncle Don's cola (not a brand name) sells for $1.50.Even defenders of brand names would have to admit that

Accepted Answer

A)  no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola.
B)  the side-by-side presence of these two colas conveys no useful information to consumers.
C)  Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name.
D)  None of the above is correct.E) B) and D)
F) B) and C)

Question 20

Figure 17-2
 
-Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

Accepted Answer

A)  Panel a
B)  Panel b
C)  Panel c
D)  Panel dE) C) and D)
F) All of the above

Exam 17: Monopolistic Competition

Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name) sells for $3.00,while a six-pack of Uncle Don's cola (not a brand name) sells for $1.50.Even defenders of brand names would have to admit that

Correct AnswerverifiedShow Answer

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

Correct AnswerverifiedShow Answer

Ignoring oligopoly and focusing on the other three market structures,in which of those market structures does a profit-maximizing firm experience zero economic profit?

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Advertising that uses celebrity endorsements is most likely intended to

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In which of the following product markets are we likely to observe the largest amount of advertising?

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Table 17-1 -Refer to Table 17-1.This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm.What price will this firm charge to maximize profit?

Correct AnswerverifiedShow Answer

As developing countries make a transition to market-based economies,one of the first major capital investments is in "Western-quality" hotels.Explain why "brand-name" hotel accommodations are a critical step in attracting foreign investment.

Correct AnswerverifiedBrand-name hotels are a critic...View AnswerShow Answer

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Correct AnswerverifiedAdvertising provides information to cons...View AnswerShow Answer

When a new firm enters a monopolistically competitive market,the individual demand curves faced by all existing firms in that market will

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Advertising

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The primary claim of defenders of advertising is that it

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The product-variety externality is associated with

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A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.

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New firms will likely enter a monopolistically competitive market when price exceeds

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When a firm's demand curve is tangent to its average total cost curve,the

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In the long run,

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Figure 17-2 -Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

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What is meant by the term "excess capacity" as it relates to monopolistically competitive firms?

Correct AnswerverifiedMonopolistically competitive f...View AnswerShow Answer

The debate over the efficiency of markets in which products with brand names are sold

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Which of the following statements regarding monopolistic competition is false?

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Brand-name hotels are a critic...
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Advertising provides information to cons...
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Monopolistically competitive f...
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