Question 1

According to the article "What's Behind Starbucks' Price Hike," Starbucks raised prices due to

Accepted Answer

A) Lack of competition. 
B) Elastic demand. 
C) Increases in the costs of wages and fuel. 
D) A decrease in brand loyalty for Starbucks. 
A) Lack of competition. 
B) Elastic demand. 
C) Increases in the costs of wages and fuel. 
D) A decrease in brand loyalty for Starbucks.

Question 2

Product differentiation occurs when

Accepted Answer

A) A completely new process is used to produce a familiar product. 
B) One firm produces many varieties of a product. 
C) Buyers perceive differences in the products of several companies. 
D) Sellers perceive differences in the products of several companies. 
A) A completely new process is used to produce a familiar product. 
B) One firm produces many varieties of a product. 
C) Buyers perceive differences in the products of several companies. 
D) Sellers perceive differences in the products of several companies.

Question 3

Cross price elasticity measures

Accepted Answer

A) The change in quantity demanded for one good relative to a change in the price of another good. 
B) How sensitive quantity demanded is to a change in price. 
C) The change in quantity demanded when income changes. 
D) How complements and substitutes differ from one another. 
A) The change in quantity demanded for one good relative to a change in the price of another good. 
B) How sensitive quantity demanded is to a change in price. 
C) The change in quantity demanded when income changes. 
D) How complements and substitutes differ from one another.

Question 4

Demand and Cost Data for Will's Beach Ball Company Table 26.1
A Monopolistically Competitive Firm
$\begin{array}{|r|r|r|r|r|}
\hline&\text { Demand Data }&&\
\text { Price } & \text { Quantity } & \text { Cost Data Output } & \text { Total Cost } \
\hline \$ 11 & 6 & 6 & \$ 48 \
\hline \$ 10 & 7 & 7 & \$ 52 \
\hline\$9&8&8&\$57\
\hline \$ 8 & 9 & 9 & \$63 \
\hline  \$7 & 10& 10&\$70 \
\hline
\end{array}$
 Refer to Table 26.1.In order to maximize profit,Will's Beach Ball Company should produce ________ and charge a price of ________ each.

Accepted Answer

A) 6 beach balls;$11 
B) 7 beach balls;$10 
C) 8 beach balls;$9 
D) 9 beach balls;$8 
A) 6 beach balls;$11 
B) 7 beach balls;$10 
C) 8 beach balls;$9 
D) 9 beach balls;$8

Question 5

Refer to Figure 26.2 for a monopolistically competitive firm.At the profit-maximizing output and price,this firm is experiencing economic

Accepted Answer

A) Profits and should stay in this market in the long run. 
B) Profits but could make even higher economic profits producing the next best alternative good. 
C) Losses but should keep producing in the short run. 
D) Losses and should shut down in the short run. 
A) Profits and should stay in this market in the long run. 
B) Profits but could make even higher economic profits producing the next best alternative good. 
C) Losses but should keep producing in the short run. 
D) Losses and should shut down in the short run.

Question 6

If a monopolistic competitor lowers its price,it will attract a significant number of new customers.

Accepted Answer

A) True 
 B)False

Question 7

In monopolistic competition,modest changes in the output or price of any single firm will have no significant influence on the sales of other firms.

Accepted Answer

A) True 
 B)False

Question 8

The cross-price elasticity of demand for the products of monopolistically competitive firms is

Accepted Answer

A) Very high. 
B) Low. 
C) An indication that most of the products are complementary goods. 
D) The same as in perfect competition. 
A) Very high. 
B) Low. 
C) An indication that most of the products are complementary goods. 
D) The same as in perfect competition.

Question 9

Monopolistically competitive industries are characterized by all of the following except

Accepted Answer

A) Homogeneous products. 
B) Low entry barriers. 
C) Low concentration ratios. 
D) Independent production decisions. 
A) Homogeneous products. 
B) Low entry barriers. 
C) Low concentration ratios. 
D) Independent production decisions.

Question 10

The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of

Accepted Answer

A) Zero to 2 percent. 
B) Zero to 5 percent. 
C) 20 to 40 percent. 
D) 70 to 100 percent. 
A) Zero to 2 percent. 
B) Zero to 5 percent. 
C) 20 to 40 percent. 
D) 70 to 100 percent.

Question 11

In a monopolistically competitive market with negative economic profits,

Accepted Answer

A) Firms will enter until accounting profits are zero. 
B) Firms will enter until economic profits are zero. 
C) Firms will exit until economic profits are zero. 
D) No entry or exit will occur. 
A) Firms will enter until accounting profits are zero. 
B) Firms will enter until economic profits are zero. 
C) Firms will exit until economic profits are zero. 
D) No entry or exit will occur.

Question 12

Which of the following industries is not an example of monopolistic competition?

Accepted Answer

A) Pizza delivery. 
B) Toys. 
C) Notebook computers. 
D) Airlines. 
A) Pizza delivery. 
B) Toys. 
C) Notebook computers. 
D) Airlines.

Question 13

Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets.Which of the following would achieve this goal?

Accepted Answer

A) Firms are allowed to establish significant barriers to entry. 
B) Firms are encouraged to produce less output. 
C) Firms are required to set price equal to marginal cost. 
D) Firms are required to charge the same price. 
A) Firms are allowed to establish significant barriers to entry. 
B) Firms are encouraged to produce less output. 
C) Firms are required to set price equal to marginal cost. 
D) Firms are required to charge the same price.

Question 14

Refer to Figure 26.3 for a monopolistically competitive firm.The output level that is allocatively efficient for this firm is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Zero.The firm should shut down because it is not earning an economic profit. 
A) Q1. 
B) Q2. 
C) Q3. 
D) Zero.The firm should shut down because it is not earning an economic profit.

Question 15

Which of the following is an example of product differentiation?

Accepted Answer

A) Two shampoos differ only in their labels,but consumers pay $0.20 more for the label they recognize. 
B) Sugar can be made from sugar beets or sugar cane,and consumers cannot tell the difference. 
C) Consumers substitute SUVs for cars because SUVs accommodate more passengers. 
D) Mills produce softwood and hardwood,but the two are used for different purposes. 
A) Two shampoos differ only in their labels,but consumers pay $0.20 more for the label they recognize. 
B) Sugar can be made from sugar beets or sugar cane,and consumers cannot tell the difference. 
C) Consumers substitute SUVs for cars because SUVs accommodate more passengers. 
D) Mills produce softwood and hardwood,but the two are used for different purposes.

Question 16

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by

Accepted Answer

A) Setting price equal to marginal cost. 
B) Producing at the output level where ATC is minimized. 
C) Producing at the output level where MR equals MC. 
D) Producing at the output level where MC equals ATC. 
A) Setting price equal to marginal cost. 
B) Producing at the output level where ATC is minimized. 
C) Producing at the output level where MR equals MC. 
D) Producing at the output level where MC equals ATC.

Question 17

Which firm in Figure 26.5 is producing at the output level that maximizes production efficiency?

Accepted Answer

A) Firms A and C only. 
B) Firm A only. 
C) Firm B only. 
D) Firms B and D only. 
A) Firms A and C only. 
B) Firm A only. 
C) Firm B only. 
D) Firms B and D only.

Question 18

Economists say that excess capacity in monopolistically competitive markets is "the cost to society of variety." What is the cost that economists are talking about,and why is this cost the result of having a variety of goods and services?

Accepted Answer

The cost to society is the goods and ser

Question 19

When firms enter a monopolistically competitive industry,the industry cost curves shift to the right.

Accepted Answer

A) True 
 B)False

Question 20

A World View article titled "The Best Global Brands" discusses the value of brand names.In 2016 which of the following was the most valuable brand name?

Accepted Answer

A) Apple. 
B) Google. 
C) Coca-Cola. 
D) McDonalds. 
A) Apple. 
B) Google. 
C) Coca-Cola. 
D) McDonalds.

Exam 26: Monopolistic Competition

According to the article "What's Behind Starbucks' Price Hike," Starbucks raised prices due to

Product differentiation occurs when

Cross price elasticity measures

Refer to Figure 26.2 for a monopolistically competitive firm.At the profit-maximizing output and price,this firm is experiencing economic

If a monopolistic competitor lowers its price,it will attract a significant number of new customers.

In monopolistic competition,modest changes in the output or price of any single firm will have no significant influence on the sales of other firms.

The cross-price elasticity of demand for the products of monopolistically competitive firms is

Monopolistically competitive industries are characterized by all of the following except

The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of

In a monopolistically competitive market with negative economic profits,

Which of the following industries is not an example of monopolistic competition?

Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets.Which of the following would achieve this goal?

Refer to Figure 26.3 for a monopolistically competitive firm.The output level that is allocatively efficient for this firm is

Which of the following is an example of product differentiation?

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by

Which firm in Figure 26.5 is producing at the output level that maximizes production efficiency?

Economists say that excess capacity in monopolistically competitive markets is "the cost to society of variety." What is the cost that economists are talking about,and why is this cost the result of having a variety of goods and services?

When firms enter a monopolistically competitive industry,the industry cost curves shift to the right.

A World View article titled "The Best Global Brands" discusses the value of brand names.In 2016 which of the following was the most valuable brand name?

Economics: the Core Issues

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Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

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