Question 1

When existing firms lose customers and profits due to entry of a new competitor, a

Accepted Answer

A) predatory-pricing externality occurs. 
B) consumption externality occurs. 
C) business-stealing externality occurs. 
D) product-variety externality occurs. 
A) predatory-pricing externality occurs. 
B) consumption externality occurs. 
C) business-stealing externality occurs. 
D) product-variety externality occurs.

Question 2

In a monopolistically competitive market,

Accepted Answer

A) strategic interactions among the firms are very important. 
B) the threat of entry by new firms is not an important consideration. 
C) the attainment of a Nash equilibrium is an important objective. 
D) firms may enter even though they will earn zero economic profit in the long run. 
A) strategic interactions among the firms are very important. 
B) the threat of entry by new firms is not an important consideration. 
C) the attainment of a Nash equilibrium is an important objective. 
D) firms may enter even though they will earn zero economic profit in the long run.

Question 3

Which market structure(s) include(s) many firms with differentiated products who can enter and exit the market freely?

Accepted Answer

monopolist

Question 4

​As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift ​

Accepted Answer

A) ​To the left and become less elastic 
B) ​To the right and becomes less elastic 
C) ​To the left and becomes more elastic 
D) ​To the right and becomes more elastic 
A) ​To the left and become less elastic 
B) ​To the right and becomes less elastic 
C) ​To the left and becomes more elastic 
D) ​To the right and becomes more elastic

Question 5

Figure 16-13  
-Refer to Figure 16-13. Use the letters to identify the area of profit for this firm.

Accepted Answer

The answer of Figure 16-13  
-Refer to Figure 16-13....

Question 6

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

Accepted Answer

A) the quality of products sold in the market always increases. 
B) customers are less likely to be informed about other characteristics of the product. 
C) new firms are discouraged from entering the market. 
D) each firm has less market power. 
A) the quality of products sold in the market always increases. 
B) customers are less likely to be informed about other characteristics of the product. 
C) new firms are discouraged from entering the market. 
D) each firm has less market power.

Question 7

Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 8

When advertising is used to relay information about price, each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 9

In what way is monopolistic competition less beneficial to the welfare of society in the long run? ​

Accepted Answer

A) ​The firm can earn an economic profit. 
B) ​The firm does not produce where marginal revenue is equal to marginal cost. 
C) ​The firm does not produce where average total cost is minimized 
D) ​The firm does not shut down if the price is less than average variable cost. ​ 
A) ​The firm can earn an economic profit. 
B) ​The firm does not produce where marginal revenue is equal to marginal cost. 
C) ​The firm does not produce where average total cost is minimized 
D) ​The firm does not shut down if the price is less than average variable cost. ​

Question 10

Monopolistically competitive firms have excess capacity. To maximize profits, firms will

Accepted Answer

A) increase their output to lower their average total cost of production and eliminate the excess capacity. 
B) produce where price equals marginal cost to eliminate the excess capacity. 
C) produce where average revenue equals marginal cost to eliminate the excess capacity. 
D) maintain the excess capacity. 
A) increase their output to lower their average total cost of production and eliminate the excess capacity. 
B) produce where price equals marginal cost to eliminate the excess capacity. 
C) produce where average revenue equals marginal cost to eliminate the excess capacity. 
D) maintain the excess capacity.

Question 11

One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.

Accepted Answer

A) True 
 B)False

Question 12

Consider two industries in which firms hold the following market shares:
Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1%
Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2%
What are the concentration ratios for each industry? Which is more competitive?

Accepted Answer

The answer of Consider two industries in which firms hold...

Question 13

The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the

Accepted Answer

A) business-stealing externality that is observed in monopolistically competitive markets. 
B) product-variety externality that is observed in monopolistically competitive markets. 
C) inefficiencies of the long-term losses earned by monopolistically competitive firms. 
D) persistence of positive profits into the long run for monopolistically competitive firms. 
A) business-stealing externality that is observed in monopolistically competitive markets. 
B) product-variety externality that is observed in monopolistically competitive markets. 
C) inefficiencies of the long-term losses earned by monopolistically competitive firms. 
D) persistence of positive profits into the long run for monopolistically competitive firms.

Question 14

Figure 16-12  
-Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry?

Accepted Answer

The answer of Figure 16-12  
-Refer to Figure 16-12....

Question 15

​An empirical study compared the price of eyeglasses in states that restricted advertising by optometrists with those that did not.The study revealed: ​

Accepted Answer

A) ​That the average price of eyeglasses in states where advertising was restricted was higher than the average price in states were advertising was not restricted 
B) ​That the average price of eyeglasses in states where advertising was not restricted was higher than the average price in states where advertising was restricted 
C) ​That the average price of eyeglasses did not differ between states where advertising was restricted and those in which advertising was not restricted 
D) ​That the greater the level of advertising, the higher the average price of eyeglasses 
A) ​That the average price of eyeglasses in states where advertising was restricted was higher than the average price in states were advertising was not restricted 
B) ​That the average price of eyeglasses in states where advertising was not restricted was higher than the average price in states where advertising was restricted 
C) ​That the average price of eyeglasses did not differ between states where advertising was restricted and those in which advertising was not restricted 
D) ​That the greater the level of advertising, the higher the average price of eyeglasses

Question 16

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)  
-Refer to Scenario 16-3. How many ice cream cones should Peter sell in one day to maximize his profits?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Question 17

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

Accepted Answer

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

Question 18

When a market is monopolistically competitive, the typical firm in the market can earn

Accepted Answer

A) losses in the short run and profits in the long run. 
B) profits in the short run and the long run. 
C) losses in the short run and zero profit in the long run. 
D) zero profit in the short run and losses in the long run. 
A) losses in the short run and profits in the long run. 
B) profits in the short run and the long run. 
C) losses in the short run and zero profit in the long run. 
D) zero profit in the short run and losses in the long run.

Question 19

A firm has the following cost structure:   If this firm is in a typical perfectly competitive market, in the long run it will likely produce

Accepted Answer

A) 8 or fewer units of output. 
B) 10 units of output. 
C) more than 10 units of output. 
D) None of the above are necessarily correct because there is not enough information to tell. 
A) 8 or fewer units of output. 
B) 10 units of output. 
C) more than 10 units of output. 
D) None of the above are necessarily correct because there is not enough information to tell.

Question 20

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

Accepted Answer

A) marginal revenue will equal average total cost. 
B) price will exceed marginal cost. 
C) marginal cost will exceed average revenue. 
D) average variable cost will be declining. 
A) marginal revenue will equal average total cost. 
B) price will exceed marginal cost. 
C) marginal cost will exceed average revenue. 
D) average variable cost will be declining.

Exam 16: Monopolistic Competition

When existing firms lose customers and profits due to entry of a new competitor, a

In a monopolistically competitive market,

Which market structure(s) include(s) many firms with differentiated products who can enter and exit the market freely?

​As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift ​

Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of profit for this firm.

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

Excess capacity characterizes firms in monopolistically competitive markets, even in situations of long-run equilibrium.

When advertising is used to relay information about price, each firm is able to enhance market power.

In what way is monopolistic competition less beneficial to the welfare of society in the long run? ​

Monopolistically competitive firms have excess capacity. To maximize profits, firms will

One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.

Consider two industries in which firms hold the following market shares: Industry A: 25%, 20%, 18%, 15%, 8%, 7%, 4%, 2%, 1% Industry B: 30%, 10%, 9%, 8%, 8%, 8%, 8%, 6%, 6%, 5%, 2% What are the concentration ratios for each industry? Which is more competitive?

The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the

Figure 16-12 -Refer to Figure 16-12. What, if any, long run adjustment will take place in this industry?

​An empirical study compared the price of eyeglasses in states that restricted advertising by optometrists with those that did not.The study revealed: ​

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

When a market is monopolistically competitive, the typical firm in the market can earn

A firm has the following cost structure: If this firm is in a typical perfectly competitive market, in the long run it will likely produce

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

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

As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift

In what way is monopolistic competition less beneficial to the welfare of society in the long run?

An empirical study compared the price of eyeglasses in states that restricted advertising by optometrists with those that did not.The study revealed: