Question 1

When advertising encourages customers to become more informed about all firms in the market:

Accepted Answer

A) demand curves for specific brands in the market are likely to become less elastic 
B) each firm is likely to have less market power 
C) firms are able to foster stronger brand loyalty 
D) the market power of individual firms is strengthened 
A) demand curves for specific brands in the market are likely to become less elastic 
B) each firm is likely to have less market power 
C) firms are able to foster stronger brand loyalty 
D) the market power of individual firms is strengthened

Question 2

Graph 17-3   Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms.
-Refer to Graph 17-3.Panel c in the set of graphs shown depicts the effect on incumbent firms of:

Accepted Answer

A) a few existing firms exiting the market 
B) new entrants in the market 
C) long-run economic losses 
D) an increase in the diversity of products offered in the market 
A) a few existing firms exiting the market 
B) new entrants in the market 
C) long-run economic losses 
D) an increase in the diversity of products offered in the market

Question 3

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with a signal of product quality.

Accepted Answer

A) True 
 B)False

Question 4

Graph 17-3   Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms.
-Refer to Graph 17-3.Panel d in the set of figures shown depicts the effect on incumbent firms of:

Accepted Answer

A) existing firms exiting the market 
B) long-run economic losses 
C) a decrease in the diversity of products offered in the market 
D) new entrants in the market 
A) existing firms exiting the market 
B) long-run economic losses 
C) a decrease in the diversity of products offered in the market 
D) new entrants in the market

Question 5

In differentiated product markets that are characterised by advertising, evidence suggests that which of the following statements are true?
(i) markets are less efficient
(ii) consumers make better choices
(iii) in general, firms are less profitable

Accepted Answer

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

Question 6

For profit-maximising firms in a monopolistically competitive market, another customer means:

Accepted Answer

A) potential economic losses 
B) marginal cost could potentially exceed price 
C) more profit 
D) zero economic profit 
A) potential economic losses 
B) marginal cost could potentially exceed price 
C) more profit 
D) zero economic profit

Question 7

Monopolistically competitive markets have two main sources of inefficiency: mark-up over marginal cost, and externalities associated with entry of new firms.Explain how these inefficiencies can have an impact on total welfare (Hint: there are both positive and negative externalities associated with firms entering the market).

Accepted Answer

Mark-up over marginal cost means that so

Question 8

As in a monopoly market, monopolistically competitive firms:

Accepted Answer

A) earn economic profit in the long run 
B) sell their product at a price that equals marginal cost 
C) are generally driven by altruistic motives 
D) find that price and marginal revenue are not necessarily equal 
A) earn economic profit in the long run 
B) sell their product at a price that equals marginal cost 
C) are generally driven by altruistic motives 
D) find that price and marginal revenue are not necessarily equal

Question 9

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Accepted Answer

A) it will be able to increase its mark-up over marginal cost 
B) the firm will eventually have to lower its price to remain competitive 
C) it will increase the wellbeing of society 
D) it will reduce average total cost 
A) it will be able to increase its mark-up over marginal cost 
B) the firm will eventually have to lower its price to remain competitive 
C) it will increase the wellbeing of society 
D) it will reduce average total cost

Question 10

Suppose a new competitor enters a market and the incumbent firms lose customers and profits.This means that a:

Accepted Answer

A) business-stealing externality has occurred 
B) product-variety externality has occurred 
C) predatory pricing externality has occurred 
D) consumption externality has occurred 
A) business-stealing externality has occurred 
B) product-variety externality has occurred 
C) predatory pricing externality has occurred 
D) consumption externality has occurred

Question 11

Advertising can be used as a signal of product quality, even if the advertisement contains little information about the product.

Accepted Answer

A) True 
 B)False

Question 12

When firms in a monopolistically competitive market are said to experience excess capacity, this fact is:

Accepted Answer

A) not relevant when firms price above marginal cost 
B) likely to be minimised when firms experience a U-shaped average cost curve 
C) not directly relevant to evaluating economic welfare 
D) the foundation for evaluating economic welfare of the market structure 
A) not relevant when firms price above marginal cost 
B) likely to be minimised when firms experience a U-shaped average cost curve 
C) not directly relevant to evaluating economic welfare 
D) the foundation for evaluating economic welfare of the market structure

Question 13

When firms are encouraged to enter monopolistically competitive markets:

Accepted Answer

A) the diversity of products in the market must be small 
B) they are guaranteed economic profits upon entry 
C) some firms in the market must be making economic profits 
D) no firms can experience economic losses 
A) the diversity of products in the market must be small 
B) they are guaranteed economic profits upon entry 
C) some firms in the market must be making economic profits 
D) no firms can experience economic losses

Question 14

A profit-maximising firm in a monopolistically competitive market is eager for another customer because:

Accepted Answer

A) it has excess capacity 
B) a mark-up over marginal cost is difficult to maintain 
C) price exceeds marginal cost 
D) it earns zero economic profits in the long run 
A) it has excess capacity 
B) a mark-up over marginal cost is difficult to maintain 
C) price exceeds marginal cost 
D) it earns zero economic profits in the long run

Question 15

Suppose a current-affairs investigation reveals that in a market that was monopolistically competitive all the goods are actually homogenous, that is, there is no differentiation between them.In the short run, the market is then most likely to represent:

Accepted Answer

A) a competitive market 
B) a duopoly 
C) a monopoly 
D) a monopolistically competitive market 
A) a competitive market 
B) a duopoly 
C) a monopoly 
D) a monopolistically competitive market

Question 16

Monopolistic competition is characterised by which of the following attributes?
(i) many sellers
(ii) product differentiation
(iii) barriers to entry

Accepted Answer

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

Question 17

Which of the following are important differences between monopolistically competitive markets and monopoly markets?
(i) one market is efficient while the other entrails dead-weight losses
(ii) upward sloping marginal costs is only seen in one of the markets
(iii) long-run profits are possible in one but not the other

Accepted Answer

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

Question 18

Critics of advertisements that depict 'beautiful' human bodies as the primary focus of the message are likely to claim that the purpose of the advertisement is to create desires that do not already exist.

Accepted Answer

A) True 
 B)False

Question 19

According to the information provided, if Firm A decides to advertise its product, it can expect to:

Accepted Answer

A) incur a loss of $3 million 
B) have a profit of $6 million 
C) get repeat sales above and beyond the initial two million consumers 
D) increase its market power 
A) incur a loss of $3 million 
B) have a profit of $6 million 
C) get repeat sales above and beyond the initial two million consumers 
D) increase its market power

Question 20

Which two curves are tangent in a monopolistically competitive market with zero economic profit?

Accepted Answer

A) demand and marginal revenue 
B) demand and total revenue 
C) demand and average total cost 
D) demand and average fixed cost 
A) demand and marginal revenue 
B) demand and total revenue 
C) demand and average total cost 
D) demand and average fixed cost

Exam 16: Monopolistic Competition

When advertising encourages customers to become more informed about all firms in the market:

Graph 17-3 Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms. -Refer to Graph 17-3.Panel c in the set of graphs shown depicts the effect on incumbent firms of:

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with a signal of product quality.

Graph 17-3 Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms. -Refer to Graph 17-3.Panel d in the set of figures shown depicts the effect on incumbent firms of:

In differentiated product markets that are characterised by advertising, evidence suggests that which of the following statements are true? (i) markets are less efficient (ii) consumers make better choices (iii) in general, firms are less profitable

For profit-maximising firms in a monopolistically competitive market, another customer means:

As in a monopoly market, monopolistically competitive firms:

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Suppose a new competitor enters a market and the incumbent firms lose customers and profits.This means that a:

Advertising can be used as a signal of product quality, even if the advertisement contains little information about the product.

When firms in a monopolistically competitive market are said to experience excess capacity, this fact is:

When firms are encouraged to enter monopolistically competitive markets:

A profit-maximising firm in a monopolistically competitive market is eager for another customer because:

Suppose a current-affairs investigation reveals that in a market that was monopolistically competitive all the goods are actually homogenous, that is, there is no differentiation between them.In the short run, the market is then most likely to represent:

Monopolistic competition is characterised by which of the following attributes? (i) many sellers (ii) product differentiation (iii) barriers to entry

Critics of advertisements that depict 'beautiful' human bodies as the primary focus of the message are likely to claim that the purpose of the advertisement is to create desires that do not already exist.

According to the information provided, if Firm A decides to advertise its product, it can expect to:

Which two curves are tangent in a monopolistically competitive market with zero economic profit?

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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