Question 1

The product-variety externality is associated with the

Accepted Answer

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

Question 2

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not a key feature of monopolistic competition?

Accepted Answer

A) Price above the minimum average total cost 
B) Zero economic profits for firms in the long run 
C) Positive economic profits for firms in the long run 
D) Entry and exit in the long run 
A) Price above the minimum average total cost 
B) Zero economic profits for firms in the long run 
C) Positive economic profits for firms in the long run 
D) Entry and exit in the long run

Question 4

A market structure with only a few sellers, each offering similar or identical products, is known as

Accepted Answer

A) oligopoly. 
B) monopoly. 
C) monopolistic competition. 
D) perfect competition. 
A) oligopoly. 
B) monopoly. 
C) monopolistic competition. 
D) perfect competition.

Question 5

Table 16-4
Beatrice's Birthday Cakes operates in a monopolistically competitive market, so it is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's.
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-Refer to Table 16-4. If the government required Beatrice's to produce at the efficient scale of output, how many cakes would Beatrice's sell?

Accepted Answer

A) 4 
B) 5 
C) 6 
D) 7 
A) 4 
B) 5 
C) 6 
D) 7

Question 6

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Figure 16-11
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-Refer to Figure 16-11. Which letter represents the profit-maximizing quantity?

Accepted Answer

The answer of Figure 16-11
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-Refer to Figure...

Question 9

The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.

Accepted Answer

A) True 
 B)False

Question 10

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

Accepted Answer

perfect competition

Question 11

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Accepted Answer

A) True 
 B)False

Question 12

Scenario 16-6
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Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products.
-Refer to Scenario 16-6. If advertising were banned in these markets, what would likely happen to the prices of chips and soda?

Accepted Answer

They would

Question 13

Monopolistic competition is considered inefficient because

Accepted Answer

A) price exceeds marginal cost. 
B) output is excessive. 
C) long-run profits are positive. 
D) barriers to entry limit the number of firms in the market. 
A) price exceeds marginal cost. 
B) output is excessive. 
C) long-run profits are positive. 
D) barriers to entry limit the number of firms in the market.

Question 14

A monopolistically competitive market is characterized by barriers to entry.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is true about a monopolistically competitive firm?

Accepted Answer

A) It can earn an economic profit in the short run, but not the long run. 
B) It can earn an economic profit in the short run and the long run. 
C) It can earn an economic profit in the long run, but not the short run. 
D) It cannot earn a economic profit in either the short or long run. 
A) It can earn an economic profit in the short run, but not the long run. 
B) It can earn an economic profit in the short run and the long run. 
C) It can earn an economic profit in the long run, but not the short run. 
D) It cannot earn a economic profit in either the short or long run.

Question 16

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

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Scenario 16-3
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 16-3. 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 19

Scenario 16-1
Venya 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. Venya's demand and cost values for sales per day are given in the following table. (Everyone who purchases Venya's ice cream buys a double scoop cone because it's so delicious.)
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-Refer to Scenario 16-1. What price should Venya charge per double scoop ice cream cone to maximize his profit?

Accepted Answer

A) $1.80 
B) $3.80 
C) $3.00 
D) $4.20 
A) $1.80 
B) $3.80 
C) $3.00 
D) $4.20

Question 20

List five goods that are likely sold in a monopolistically competitive market.

Accepted Answer

Books, CDs, movies,

Exam 16: Monopolistic Competition

The product-variety externality is associated with the

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy. Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Which of the following is not a key feature of monopolistic competition?

A market structure with only a few sellers, each offering similar or identical products, is known as

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

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.

Figure 16-11 ​ ​ -Refer to Figure 16-11. Which letter represents the profit-maximizing quantity?

The term excess capacity refers to the fact that a firm operates on the upward-sloping portion of its average-total-cost curve.

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures can have positive profits in the short run?

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Monopolistic competition is considered inefficient because

A monopolistically competitive market is characterized by barriers to entry.

Which of the following is true about a monopolistically competitive firm?

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

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

List five goods that are likely sold in a monopolistically competitive market.

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 Nations 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

Filters

Figure 16-11 -Refer to Figure 16-11. Which letter represents the profit-maximizing quantity?