Question 1

In the long run, the profit for a monopolistically competitive firm moves to the competitive level due to:

Accepted Answer

A) moving demand for its product 
B) rising average total cost 
C) rising average variable cost 
D) the cost of advertising 
A) moving demand for its product 
B) rising average total cost 
C) rising average variable cost 
D) the cost of advertising

Question 2

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Accepted Answer

A) shift in an unpredictable direction 
B) shift to the right 
C) shift to the left 
D) remain unchanged; only the supply curve will shift 
A) shift in an unpredictable direction 
B) shift to the right 
C) shift to the left 
D) remain unchanged; only the supply curve will shift

Question 3

Graph 17-1  
-Refer to Graph 17-1, panel A.Assume the market is monopolistically competitive and in long-run equilibrium.If drawn in, the average total cost curve would be:

Accepted Answer

A) tangent to the demand curve at the market price, Pa 
B) tangent to the demand curve where marginal cost intersects demand 
C) tangent to the marginal revenue curve at the market price, Pa 
D) tangent to the marginal revenue curve at the point where marginal cost intersects marginal revenue 
A) tangent to the demand curve at the market price, Pa 
B) tangent to the demand curve where marginal cost intersects demand 
C) tangent to the marginal revenue curve at the market price, Pa 
D) tangent to the marginal revenue curve at the point where marginal cost intersects marginal revenue

Question 4

Consider the following graph   
Identify:
(a) Which panel(s) could represent a firm in monopolistic competition in the long run;
(b) Which panel(s) could not represent a firm in monopolistic competition in the short run;
(c) Which panel(s) could represent a firm in monopolistic competition making a loss;
(d) Which panel(s) could represent a firm in monopolistic competition making a positive economic profit

Accepted Answer

Panel a, p

Question 5

When advertising is deceptive, critics claim that it:

Accepted Answer

A) makes buyers less sensitive to price differences 
B) lowers the quality of goods in the market 
C) alters a firm's supply curve 
D) increases competition in the market 
A) makes buyers less sensitive to price differences 
B) lowers the quality of goods in the market 
C) alters a firm's supply curve 
D) increases competition in the market

Question 6

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Accepted Answer

A) strategic interactions among sellers 
B) there being many sellers 
C) sellers being price makers rather than price takers 
D) the homogeneous products that are produced 
A) strategic interactions among sellers 
B) there being many sellers 
C) sellers being price makers rather than price takers 
D) the homogeneous products that are produced

Question 7

Free entry into a market drives economic profit to:

Accepted Answer

A) the Nash equilibrium 
B) zero 
C) the monopoly level 
D) the accounting equilibrium 
A) the Nash equilibrium 
B) zero 
C) the monopoly level 
D) the accounting equilibrium

Question 8

Refer to the information provided.By its willingness to spend money on advertising, Firm B:

Accepted Answer

A) signals that it is not a profit maximiser 
B) is detracting from the efficiency of markets 
C) signals the value of its new product to consumers 
D) does none of the above 
A) signals that it is not a profit maximiser 
B) is detracting from the efficiency of markets 
C) signals the value of its new product to consumers 
D) does none of the above

Question 9

The costs and benefits of advertising are still open to debate.What are the critiques of advertising? If advertising contains no information about the product, is it necessarily welfare destroying?

Accepted Answer

The critique of advertising is that firm

Question 10

A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.According to the information provided, the beer market is likely to be more efficient if the:

Accepted Answer

A) product-variety externality exceeds the business-stealing externality 
B) business-stealing externality exceeds the product-variety externality 
C) competitive externality exceeds the advertising externality 
D) advertising externality exceeds the competitive externality 
A) product-variety externality exceeds the business-stealing externality 
B) business-stealing externality exceeds the product-variety externality 
C) competitive externality exceeds the advertising externality 
D) advertising externality exceeds the competitive externality

Question 11

Advertising will be more common in markets that are:

Accepted Answer

A) homogenous 
B) expensive 
C) industrial 
D) highly differentiated 
A) homogenous 
B) expensive 
C) industrial 
D) highly differentiated

Question 12

The Pizza Hut in Agra, India has a very similar menu design, layout and content as the Pizza Hut in Bondi Junction, Sydney.This is an example of a brand name enhancing market efficiency for Australian tourists visiting India.

Accepted Answer

A) True 
 B)False

Question 13

Inefficiency in monopolistically competitive markets can be identified with:

Accepted Answer

A) their similarities to perfectly competitive markets 
B) not having the 'ideal' number of firms in the industry 
C) a first-best equilibrium, where price is equal to marginal cost 
D) government programs that effectively regulate price 
A) their similarities to perfectly competitive markets 
B) not having the 'ideal' number of firms in the industry 
C) a first-best equilibrium, where price is equal to marginal cost 
D) government programs that effectively regulate price

Question 14

What is meant by the term 'excess capacity' as it relates to monopolistically competitive firms?

Accepted Answer

In the long run, monopolistica

Question 15

Long-run economic profit in a monopolistically competitive market is mainly a function of which of the following?
(i) free entry
(ii) free exit
(iii) strategic pricing among the sellers

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii)

Question 16

Graph 17-1  
-Refer to Graph 17-1.Which of the following graphs would most likely represent a profit-maximising firm in a monopolistically competitive market?

Accepted Answer

A) panel a 
B) panel b 
C) panel c 
D) panel d 
A) panel a 
B) panel b 
C) panel c 
D) panel d

Question 17

For the purposes of imperfect competition, a "few" firms is defined as:

Accepted Answer

A) more than one firm but less than five 
B) more than five firms but less than 10 
C) more than 10 firms but less than 20 
D) none of the above, the definition of "few" is open to debate 
A) more than one firm but less than five 
B) more than five firms but less than 10 
C) more than 10 firms but less than 20 
D) none of the above, the definition of "few" is open to debate

Question 18

Hotels in Sydney observe that on most nights, about 80 per cent of their rooms are occupied, with the remainder being empty.This kind of excess capacity is indicative of what kind of market?

Accepted Answer

A) tourist markets 
B) competitive 
C) oligopoly 
D) monopolistically competitive 
A) tourist markets 
B) competitive 
C) oligopoly 
D) monopolistically competitive

Question 19

Are the resources devoted to advertising wasted? Explain how advertising may not be of social value.

Accepted Answer

Suppose that advertising simply manipula

Question 20

In some countries, brand name fast-food restaurants are not allowed to operate.Such restrictions are likely to:

Accepted Answer

A) enhance the choice set of consumers among local restaurants 
B) reduce barriers to entry in imperfect markets 
C) reduce the competitive nature of local fast-food markets 
D) enhance the social wellbeing of society 
A) enhance the choice set of consumers among local restaurants 
B) reduce barriers to entry in imperfect markets 
C) reduce the competitive nature of local fast-food markets 
D) enhance the social wellbeing of society

Exam 16: Monopolistic Competition

In the long run, the profit for a monopolistically competitive firm moves to the competitive level due to:

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Graph 17-1 -Refer to Graph 17-1, panel A.Assume the market is monopolistically competitive and in long-run equilibrium.If drawn in, the average total cost curve would be:

When advertising is deceptive, critics claim that it:

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Free entry into a market drives economic profit to:

Refer to the information provided.By its willingness to spend money on advertising, Firm B:

The costs and benefits of advertising are still open to debate.What are the critiques of advertising? If advertising contains no information about the product, is it necessarily welfare destroying?

A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.According to the information provided, the beer market is likely to be more efficient if the:

Advertising will be more common in markets that are:

The Pizza Hut in Agra, India has a very similar menu design, layout and content as the Pizza Hut in Bondi Junction, Sydney.This is an example of a brand name enhancing market efficiency for Australian tourists visiting India.

Inefficiency in monopolistically competitive markets can be identified with:

What is meant by the term 'excess capacity' as it relates to monopolistically competitive firms?

Long-run economic profit in a monopolistically competitive market is mainly a function of which of the following? (i) free entry (ii) free exit (iii) strategic pricing among the sellers

Graph 17-1 -Refer to Graph 17-1.Which of the following graphs would most likely represent a profit-maximising firm in a monopolistically competitive market?

For the purposes of imperfect competition, a "few" firms is defined as:

Hotels in Sydney observe that on most nights, about 80 per cent of their rooms are occupied, with the remainder being empty.This kind of excess capacity is indicative of what kind of market?

Are the resources devoted to advertising wasted? Explain how advertising may not be of social value.

In some countries, brand name fast-food restaurants are not allowed to operate.Such restrictions are likely to:

Ten Lessons From 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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