Question 1

From a total welfare perspective, it is possible that too many firms can enter into a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 2

When a firm operates at efficient scale, it is producing at the maximum point on its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 3

Professional organisations and producer groups have an incentive to:

Accepted Answer

A) restrict advertising in order to enhance competition on the basis of price 
B) encourage advertising in order to reduce competition on the basis of price 
C) encourage advertising in order to enhance competition on the basis of price 
D) restrict advertising in order to reduce competition on the basis of price 
A) restrict advertising in order to enhance competition on the basis of price 
B) encourage advertising in order to reduce competition on the basis of price 
C) encourage advertising in order to enhance competition on the basis of price 
D) restrict advertising in order to reduce competition on the basis of price

Question 4

Graph 17-4  
-Refer to graph 17-4.Which of the markets depicted in each panel is likely to see a firm enter in the long run?

Accepted Answer

A) panels A and B 
B) panels B and C 
C) panels A and D 
D) panels C and D 
A) panels A and B 
B) panels B and C 
C) panels A and D 
D) panels C and D

Question 5

In the market for hotel rooms in large metropolitan markets, the cost of a single night's stay can be several times higher than that of a similar room in a suburban market.If the market for hotel rooms is characterised by monopolistic competition, this difference in price can be partially explained by:

Accepted Answer

A) a higher cost for accommodations to compensate for the lower cost of airfare into metropolitan markets 
B) the mark-up of price over a higher marginal cost in large metropolitan markets 
C) the cost of living in a large city 
D) transportation access 
A) a higher cost for accommodations to compensate for the lower cost of airfare into metropolitan markets 
B) the mark-up of price over a higher marginal cost in large metropolitan markets 
C) the cost of living in a large city 
D) transportation access

Question 6

Advertising during the Rugby World Cup is an example of providing information in the advertisement's content.

Accepted Answer

A) True 
 B)False

Question 7

For many years, Google has had market dominance in many of its online activities.Recently, it has been trying to take on Facebook's dominance of social media.Google has started to use its banner space on its website and the Tech media, as well as having 'invitees' to test the 'Beta'.What advertising theory does such an approach support? Explain.

Accepted Answer

The taste-test used the 'advertising as

Question 8

The 'monopoly' in monopolistically competitive markets is the result of a firm having a monopoly on a product for which there are no substitutes.

Accepted Answer

A) True 
 B)False

Question 9

The primary claim of defenders of advertising is that:

Accepted Answer

A) it conveys information about firm profitability 
B) it enhances the information available to consumers 
C) it is psychological rather than informational 
D) all of the above are true 
A) it conveys information about firm profitability 
B) it enhances the information available to consumers 
C) it is psychological rather than informational 
D) all of the above are true

Question 10

Monopolistically competitive markets have all the desirable welfare properties of perfectly competitive markets.

Accepted Answer

A) True 
 B)False

Question 11

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, beer consumers are likely to experience what kind of externality as a result of the new ale?

Accepted Answer

A) product-variety 
B) business-stealing 
C) market price 
D) advertising 
A) product-variety 
B) business-stealing 
C) market price 
D) advertising

Question 12

In a monopolistically competitive market structure, each firm sells a good that is:

Accepted Answer

A) slightly different from goods sold by other firms 
B) produced at minimum average cost 
C) identical to other goods sold in the market 
D) produced at minimum marginal cost 
A) slightly different from goods sold by other firms 
B) produced at minimum average cost 
C) identical to other goods sold in the market 
D) produced at minimum marginal cost

Question 13

When free entry is one of the attributes of a market structure, economic profits are:

Accepted Answer

A) eventually driven to zero 
B) negative for all firms 
C) never above or below zero 
D) always positive 
A) eventually driven to zero 
B) negative for all firms 
C) never above or below zero 
D) always positive

Question 14

Advertising only benefits suppliers of a good and has little value to consumers.

Accepted Answer

A) True 
 B)False

Question 15

A firm in a monopolistically competitive market is usually concerned about each additional customer walking through the door, since it will always end up earning additional economic profits.

Accepted Answer

A) True 
 B)False

Question 16

If firms in a monopolistically competitive market are earning positive profits, firms will enter until price equals the minimum of average total cost.

Accepted Answer

A) True 
 B)False

Question 17

When advertising is cheap:

Accepted Answer

A) it is more likely to impede market power 
B) consumers are more able to focus on informational content 
C) consumers learn to ignore it over time 
D) all of the above are likely to be true 
A) it is more likely to impede market power 
B) consumers are more able to focus on informational content 
C) consumers learn to ignore it over time 
D) all of the above are likely to be true

Question 18

If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best reflect the change facing incumbent firms (who are able to stay in the market) as the market adjusts to its new equilibrium?

Accepted Answer

A) a downward shift in their marginal cost curve 
B) an upward shift in their marginal cost curve 
C) an increase in demand 
D) a decrease in demand 
A) a downward shift in their marginal cost curve 
B) an upward shift in their marginal cost curve 
C) an increase in demand 
D) a decrease in demand

Question 19

Graph 17-4  
-Refer to graph 17-4.Which of the markets depicted in each panel is likely to see firms exit in the long run?

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 20

If advertising reduces a consumer's price sensitivity between identical goods, it is likely to:

Accepted Answer

A) enhance competition and reduce social wellbeing 
B) enhance competition and increase social wellbeing 
C) impede competition and increase social wellbeing 
D) impede competition and reduce social wellbeing 
A) enhance competition and reduce social wellbeing 
B) enhance competition and increase social wellbeing 
C) impede competition and increase social wellbeing 
D) impede competition and reduce social wellbeing

Exam 16: Monopolistic Competition

From a total welfare perspective, it is possible that too many firms can enter into a monopolistically competitive market.

When a firm operates at efficient scale, it is producing at the maximum point on its average total cost curve.

Professional organisations and producer groups have an incentive to:

Graph 17-4 -Refer to graph 17-4.Which of the markets depicted in each panel is likely to see a firm enter in the long run?

Advertising during the Rugby World Cup is an example of providing information in the advertisement's content.

The 'monopoly' in monopolistically competitive markets is the result of a firm having a monopoly on a product for which there are no substitutes.

The primary claim of defenders of advertising is that:

Monopolistically competitive markets have all the desirable welfare properties of perfectly competitive markets.

In a monopolistically competitive market structure, each firm sells a good that is:

When free entry is one of the attributes of a market structure, economic profits are:

Advertising only benefits suppliers of a good and has little value to consumers.

A firm in a monopolistically competitive market is usually concerned about each additional customer walking through the door, since it will always end up earning additional economic profits.

If firms in a monopolistically competitive market are earning positive profits, firms will enter until price equals the minimum of average total cost.

When advertising is cheap:

If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best reflect the change facing incumbent firms (who are able to stay in the market) as the market adjusts to its new equilibrium?

Graph 17-4 -Refer to graph 17-4.Which of the markets depicted in each panel is likely to see firms exit in the long run?

If advertising reduces a consumer's price sensitivity between identical goods, it is 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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