Question 1

Which of the following statements is correct?

Accepted Answer

A) In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B) A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C) For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D) All of the above are correct. 
A) In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B) A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C) For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D) All of the above are correct.

Question 2

Figure 16-4  
-Refer to Figure 16-4. The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Accepted Answer

A) -$3,000. 
B) $3,000. 
C) $9,000. 
D) $24,000. 
A) -$3,000. 
B) $3,000. 
C) $9,000. 
D) $24,000.

Question 3

Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units.
-Refer to Scenario 16-7. If YumYum decides to advertise its product it can expect to

Accepted Answer

A) incur a loss of $15 million. 
B) incur a loss of $1.5 million. 
C) earn a profit of $1.5 million. 
D) earn a profit of $13.5 million. 
A) incur a loss of $15 million. 
B) incur a loss of $1.5 million. 
C) earn a profit of $1.5 million. 
D) earn a profit of $13.5 million.

Question 4

Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units.
-Refer to Scenario 16-7. By its willingness to spend money on advertising, Bertollini

Accepted Answer

A) signals the quality of its new product to consumers. 
B) signals that it is not a profit maximizer. 
C) is detracting from the efficiency of markets. 
D) will drive YumYum out of the market. 
A) signals the quality of its new product to consumers. 
B) signals that it is not a profit maximizer. 
C) is detracting from the efficiency of markets. 
D) will drive YumYum out of the market.

Question 5

Table 16-3
The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries.  
-Refer to Table 16-3. What is the concentration ratio for Industry C?

Accepted Answer

A) approximately 44% 
B) approximately 48% 
C) approximately 53% 
D) approximately 56% 
A) approximately 44% 
B) approximately 48% 
C) approximately 53% 
D) approximately 56%

Question 6

Monopolistically competitive firms could reduce the average total cost of producing by increasing output; therefore, these firms have

Accepted Answer

The answer of Monopolistically competitive firms could reduce the average...

Question 7

There are four basic types of market structure.

Accepted Answer

A) True 
 B)False

Question 8

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. What price should Peter charge to maximize his profits?

Accepted Answer

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

Question 9

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Accepted Answer

A) the firm must be earning a positive economic profit. 
B) the firm may be incurring economic losses 
C) there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. 
D) new firms will enter the market in the long run. 
A) the firm must be earning a positive economic profit. 
B) the firm may be incurring economic losses 
C) there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. 
D) new firms will enter the market in the long run.

Question 10

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

Accepted Answer

A) its average revenue will equal its marginal cost. 
B) its marginal revenue will exceed its marginal cost. 
C) it will be earning positive economic profits. 
D) its demand curve will be tangent to its average total cost curve. 
A) its average revenue will equal its marginal cost. 
B) its marginal revenue will exceed its marginal cost. 
C) it will be earning positive economic profits. 
D) its demand curve will be tangent to its average total cost curve.

Question 11

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which

Accepted Answer

A) marginal revenue is equal to marginal cost. 
B) average total cost is equal to marginal revenue. 
C) average total cost is equal to price. 
D) average revenue exceeds average total cost. 
A) marginal revenue is equal to marginal cost. 
B) average total cost is equal to marginal revenue. 
C) average total cost is equal to price. 
D) average revenue exceeds average total cost.

Question 12

A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

Accepted Answer

A) True 
 B)False

Question 13

In the study done by Lee Benham on advertising for eyeglasses,

Accepted Answer

A) advertising increased the average price. 
B) advertising decreased the average price. 
C) there was no difference in price, but quality was better in the states that didn't allow advertising. 
D) advertising appeared to have no effect whatsoever in the states that permitted advertising. 
A) advertising increased the average price. 
B) advertising decreased the average price. 
C) there was no difference in price, but quality was better in the states that didn't allow advertising. 
D) advertising appeared to have no effect whatsoever in the states that permitted advertising.

Question 14

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, because advertising is expensive. 
D) All of the above are correct. 
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, because advertising is expensive. 
D) All of the above are correct.

Question 15

Monopolistic competition is an inefficient market structure because

Accepted Answer

A) marginal revenue equals marginal cost. 
B) it has a deadweight loss, just as monopoly does. 
C) long-run profits are zero due to free entry. 
D) All of the above are correct. 
A) marginal revenue equals marginal cost. 
B) it has a deadweight loss, just as monopoly does. 
C) long-run profits are zero due to free entry. 
D) All of the above are correct.

Question 16

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Accepted Answer

A) True 
 B)False

Question 17

AllClean knows that it produces and sells very effective laundry detergent. NotQuiteWhite knows that it produces and sells ineffective laundry detergent. According to the signaling theory of advertising,

Accepted Answer

A) both AllClean and NotQuiteWhite have incentives to spend large amounts of money on advertising their products. 
B) AllClean has an incentive to spend a large amount of money on advertising its detergent, but NotQuiteWhite does not. 
C) NotQuiteWhite has an incentive to spend a large amount of money on advertising its detergent, but AllClean does not. 
D) neither AllClean nor NotQuiteWhite has an incentive to spend a large amount of money on advertising their detergents. 
A) both AllClean and NotQuiteWhite have incentives to spend large amounts of money on advertising their products. 
B) AllClean has an incentive to spend a large amount of money on advertising its detergent, but NotQuiteWhite does not. 
C) NotQuiteWhite has an incentive to spend a large amount of money on advertising its detergent, but AllClean does not. 
D) neither AllClean nor NotQuiteWhite has an incentive to spend a large amount of money on advertising their detergents.

Question 18

Product differentiation causes the seller of a good to face what type of demand curve?

Accepted Answer

A) downward sloping 
B) vertical 
C) horizontal 
D) Any of the above could be correct since product differentiation does not affect the shape of the demand curve. 
A) downward sloping 
B) vertical 
C) horizontal 
D) Any of the above could be correct since product differentiation does not affect the shape of the demand curve.

Question 19

Which of the following goods are likely to be sold in a monopolistically competitive market?

Accepted Answer

A) jeans 
B) breakfast cereal 
C) electricity distribution in Chicago 
D) postage stamps 
A) jeans 
B) breakfast cereal 
C) electricity distribution in Chicago 
D) postage stamps

Question 20

Figure 16-9
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce

Accepted Answer

A) 100 units of output, and its profit will be positive. 
B) 100 units of output, and its profit will be zero. 
C) 133.33 units of output, and its profit will be negative. 
D) 133.33 units of output, and its profit will be zero. 
A) 100 units of output, and its profit will be positive. 
B) 100 units of output, and its profit will be zero. 
C) 133.33 units of output, and its profit will be negative. 
D) 133.33 units of output, and its profit will be zero.

Exam 16: Monopolistic Competition

Which of the following statements is correct?

Figure 16-4 -Refer to Figure 16-4. The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry C?

Monopolistically competitive firms could reduce the average total cost of producing by increasing output; therefore, these firms have

There are four basic types of market structure.

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which

A profit-maximizing firm in a monopolistically competitive market can earn positive, negative, or zero profits in the short run.

In the study done by Lee Benham on advertising for eyeglasses,

Advertising

Monopolistic competition is an inefficient market structure because

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

AllClean knows that it produces and sells very effective laundry detergent. NotQuiteWhite knows that it produces and sells ineffective laundry detergent. According to the signaling theory of advertising,

Product differentiation causes the seller of a good to face what type of demand curve?

Which of the following goods are likely to be sold in a monopolistically competitive market?

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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