Question 1

Brand names are rarely used to convey information about product quality.

Accepted Answer

A) True 
 B)False

Question 2

When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will

Accepted Answer

A) shift in a direction that is unpredictable without further information. 
B) shift to the right. 
C) shift to the left. 
D) remain unchanged. It is the supply curve that will shift. 
A) shift in a direction that is unpredictable without further information. 
B) shift to the right. 
C) shift to the left. 
D) remain unchanged. It is the supply curve that will shift.

Question 3

​A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect:

Accepted Answer

A) ​The firm to earn an economic profit in the long run 
B) ​The firm to shut down in the short run 
C) ​The firm to raise its price to cover its variable costs 
D) ​The firm to adjust its production to minimum efficient scale 
A) ​The firm to earn an economic profit in the long run 
B) ​The firm to shut down in the short run 
C) ​The firm to raise its price to cover its variable costs 
D) ​The firm to adjust its production to minimum efficient scale

Question 4

In the long run, monopolistically competitive firms produce where demand equals average total cost.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is not correct?

Accepted Answer

A) Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. 
B) Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. 
C) Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. 
D) Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers. 
A) Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. 
B) Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. 
C) Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. 
D) Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

Question 6

In the long run, monopolistically competitive firms produce where demand equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

Figure 16-14  
-Refer to Figure 16-14. Use the letters to identify the deadweight loss from this firm producing at its profit-maximizing level of output.

Accepted Answer

The answer of Figure 16-14  
-Refer to Figure 16-14....

Question 8

In a monopolistically competitive market, social welfare would be enhanced if

Accepted Answer

A) price equaled marginal cost. 
B) government regulation eliminated the product-variety externality. 
C) the government raised taxes to subsidize firms that price below average total cost. 
D) there were fewer firms, making the industry closer to an oligopoly. 
A) price equaled marginal cost. 
B) government regulation eliminated the product-variety externality. 
C) the government raised taxes to subsidize firms that price below average total cost. 
D) there were fewer firms, making the industry closer to an oligopoly.

Question 9

In markets where restrictions on advertising have been used to curtail competition, the U.S. courts have generally

Accepted Answer

A) referred the matters of advertising restrictions to executive regulators. 
B) enforced industry-wide agreements to restrict advertising. 
C) been silent on the effect of explicit advertising restrictions. 
D) overturned laws that prohibit advertising. 
A) referred the matters of advertising restrictions to executive regulators. 
B) enforced industry-wide agreements to restrict advertising. 
C) been silent on the effect of explicit advertising restrictions. 
D) overturned laws that prohibit advertising.

Question 10

Figure 16-2. The figure is drawn for a monopolistically competitive firm.
 
-Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

Accepted Answer

A) with its minimum at the point (Q = 24, P = $36). 
B) with its minimum at the point (Q = 24, P = $24). 
C) tangent to the demand curve at the point (Q = 24, P = $36). 
D) tangent to the demand curve at the point (Q = 32, P = $32). 
A) with its minimum at the point (Q = 24, P = $36). 
B) with its minimum at the point (Q = 24, P = $24). 
C) tangent to the demand curve at the point (Q = 24, P = $36). 
D) tangent to the demand curve at the point (Q = 32, P = $32).

Question 11

Regulation of a firm in a monopolistically competitive market

Accepted Answer

A) usually implies a very small administrative burden. 
B) will lower the firm's costs. 
C) is commonly used to enhance market efficiency. 
D) is unlikely to improve market efficiency. 
A) usually implies a very small administrative burden. 
B) will lower the firm's costs. 
C) is commonly used to enhance market efficiency. 
D) is unlikely to improve market efficiency.

Question 12

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Accepted Answer

A) are price takers while competitive firms are not. 
B) can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. 
C) sell completely unrelated products while competitive firms do not. 
D) sell their product at a price equal to marginal cost while competitive firms do not. 
A) are price takers while competitive firms are not. 
B) can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. 
C) sell completely unrelated products while competitive firms do not. 
D) sell their product at a price equal to marginal cost while competitive firms do not.

Question 13

Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

Accepted Answer

A) no rational consumer would spend twice as much for Advil as he would for Feel Better. 
B) some consumers must perceive that Advil is a higher quality product. 
C) Advil has no incentive to maintain the quality of its product just because of the Advil brand name. 
D) Advil spends money on advertising to reduce competition in the market. 
A) no rational consumer would spend twice as much for Advil as he would for Feel Better. 
B) some consumers must perceive that Advil is a higher quality product. 
C) Advil has no incentive to maintain the quality of its product just because of the Advil brand name. 
D) Advil spends money on advertising to reduce competition in the market.

Question 14

In which of the following markets is economic profit driven to zero in the long run?

Accepted Answer

A) oligopoly 
B) monopoly 
C) monopolistic competition 
D) cartels 
A) oligopoly 
B) monopoly 
C) monopolistic competition 
D) cartels

Question 15

The product-variety externality arises in monopolistically competitive markets because

Accepted Answer

A) firms produce with excess capacity. 
B) firms try to differentiate their products. 
C) firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D) entry and exit is restricted. 
A) firms produce with excess capacity. 
B) firms try to differentiate their products. 
C) firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D) entry and exit is restricted.

Question 16

Monopolistic competition is an

Accepted Answer

A) inefficient market structure because there is deadweight loss. 
B) inefficient market structure because price exceeds marginal cost. 
C) efficient market structure because free entry drives long-run profits to zero. 
D) Both a and b are correct. 
A) inefficient market structure because there is deadweight loss. 
B) inefficient market structure because price exceeds marginal cost. 
C) efficient market structure because free entry drives long-run profits to zero. 
D) Both a and b are correct.

Question 17

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Accepted Answer

A) The monopolistically competitive firm advertises. 
B) The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C) Monopolistic competition features many buyers. 
D) Monopolistic competition features many sellers. 
A) The monopolistically competitive firm advertises. 
B) The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C) Monopolistic competition features many buyers. 
D) Monopolistic competition features many sellers.

Question 18

Two college students, Mary and Maggie, are spending spring break in Florida. Mary buys a cup of coffee each morning at the local Starbucks rather than from one of the local coffee shops. Maggie claims that Mary is irrational because she never purchases Starbucks coffee at home, and Starbucks coffee costs more than the coffee sold by local shops. An economist would most likely explain Mary's behavior by suggesting that

Accepted Answer

A) Mary's behavior is rational, but Maggie's behavior is clearly irrational. 
B) Mary's behavior is clearly irrational, but Maggie's behavior is rational. 
C) the Starbucks brand name suggests consistent quality. 
D) the advertising by Starbucks in Florida is more persuasive than the advertising by Starbucks in Mary and Maggie's home town. 
A) Mary's behavior is rational, but Maggie's behavior is clearly irrational. 
B) Mary's behavior is clearly irrational, but Maggie's behavior is rational. 
C) the Starbucks brand name suggests consistent quality. 
D) the advertising by Starbucks in Florida is more persuasive than the advertising by Starbucks in Mary and Maggie's home town.

Question 19

Evidence from the market for eyeglasses suggests that advertising leads to

Accepted Answer

A) lower-quality products for consumers. 
B) lower prices for consumers. 
C) higher prices for consumers. 
D) less concern on the part of consumers about price differences among similar goods. 
A) lower-quality products for consumers. 
B) lower prices for consumers. 
C) higher prices for consumers. 
D) less concern on the part of consumers about price differences among similar goods.

Question 20

Figure 16-3
This figure depicts a situation in a monopolistically competitive market.  
-Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?

Accepted Answer

A) P=$60, Q=20 units, profit=$200 
B) P=$80, Q=20 units, profit=$200 
C) P=$75, Q=25 units, profit=$100 
D) P=$60, Q=40 units, profit=$0 
A) P=$60, Q=20 units, profit=$200 
B) P=$80, Q=20 units, profit=$200 
C) P=$75, Q=25 units, profit=$100 
D) P=$60, Q=40 units, profit=$0

Exam 16: Monopolistic Competition

Brand names are rarely used to convey information about product quality.

When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will

​A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect:

In the long run, monopolistically competitive firms produce where demand equals average total cost.

Which of the following statements is not correct?

In the long run, monopolistically competitive firms produce where demand equals marginal cost.

Figure 16-14 -Refer to Figure 16-14. Use the letters to identify the deadweight loss from this firm producing at its profit-maximizing level of output.

In a monopolistically competitive market, social welfare would be enhanced if

In markets where restrictions on advertising have been used to curtail competition, the U.S. courts have generally

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

Regulation of a firm in a monopolistically competitive market

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Two bottles of over-the-counter pain reliever sit side-by-side in a grocery store: Advil (a brand name) sells for $5.00, while Feel Better (not a brand name) sells for $2.50. In a typical day the store sells some of each type of pain reliever, which suggests that

In which of the following markets is economic profit driven to zero in the long run?

The product-variety externality arises in monopolistically competitive markets because

Monopolistic competition is an

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Evidence from the market for eyeglasses suggests that advertising leads to

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

A monopolistically competitive firm is currently charging a price of $20 and producing 3,000 units/month. It faces monthly fixed costs of $1,000 and has an average variable cost of $22/unit. We would expect: