Question 1

If brand names are efficient market mechanisms, banning them will lead to less competition and higher prices in the markets brand names from which they are absent.

Accepted Answer

A) True 
 B)False

Question 2

Excess capacity:

Accepted Answer

A) is a characteristic of rising average total cost curves 
B) is solely a characteristic of mark-up pricing 
C) tells economists little about the desirability of a market outcome 
D) is the primary source of market inefficiency in monopolistically competitive markets 
A) is a characteristic of rising average total cost curves 
B) is solely a characteristic of mark-up pricing 
C) tells economists little about the desirability of a market outcome 
D) is the primary source of market inefficiency in monopolistically competitive markets

Question 3

Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a shift in:

Accepted Answer

A) its supply curve 
B) its demand curve 
C) its average cost curve 
D) all of the above 
A) its supply curve 
B) its demand curve 
C) its average cost curve 
D) all of the above

Question 4

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

Accepted Answer

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

Question 5

For many years, Pepsi operated a 'taste-test' booth across the US.Visitors to the booth would be encouraged to take a blind 'taste-test' between Pepsi and its primary market competitor, Coke.Pepsi then used the taste-test results in advertising Pepsi.What advertising theory does such an approach support? Pepsi no longer uses this as an advertising strategy, instead relying on celebrity endorsements and other forms of advertising.What advertising theory do you think now dominates the market between Pepsi and Coke? Explain.

Accepted Answer

The taste-test used the 'adver

Question 6

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation.Firms will thus work harder to maintain high quality.

Accepted Answer

A) True 
 B)False

Question 7

In centrally planned economies the usefulness of brand names is demonstrated when brand names allow consumers to identify producers.

Accepted Answer

A) True 
 B)False

Question 8

A monopolistically competitive market can have too many firms enter, that is, the number of firms in a market can be greater than the socially optimal number.For there to be too much entry, which of the following needs to occur?

Accepted Answer

A) the product-variety externality is greater than the business-stealing externality 
B) the business-stealing externality is greater than the product-variety externality 
C) price needs to be below average total cost, leading to negative profits 
D) some consumers must value the product at less than the price they paid 
A) the product-variety externality is greater than the business-stealing externality 
B) the business-stealing externality is greater than the product-variety externality 
C) price needs to be below average total cost, leading to negative profits 
D) some consumers must value the product at less than the price they paid

Question 9

Graph 17-4  
-Refer to Graph 17-4.Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:

Accepted Answer

A) incurring economic gains 
B) in a short-run equilibrium, but not a long-run equilibrium 
C) in both a short-run and a long-run equilibrium 
D) in a long-run equilibrium, but not a short-run equilibrium 
A) incurring economic gains 
B) in a short-run equilibrium, but not a long-run equilibrium 
C) in both a short-run and a long-run equilibrium 
D) in a long-run equilibrium, but not a short-run equilibrium

Question 10

Critics of advertising make which of the following claims?
(i) advertising is informational rather than psychological
(ii) advertising manipulates people's tastes
(iii) advertising costs generally exceed labour costs

Accepted Answer

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

Question 11

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Accepted Answer

A) the oligopolist has downward-sloping demand curve 
B) the oligopolist produces where marginal revenue exceeds marginal cost 
C) there are many buyers only in a monopolistically competitive market 
D) there are many sellers in a monopolistically competitive market 
A) the oligopolist has downward-sloping demand curve 
B) the oligopolist produces where marginal revenue exceeds marginal cost 
C) there are many buyers only in a monopolistically competitive market 
D) there are many sellers in a monopolistically competitive market

Question 12

As developing countries make the transition to market-based economies, one of the first major capital investments is in 'Western-quality' hotels.Explain why the establishment of brand-name hotel accommodation is a critical step in attracting foreign investment.

Accepted Answer

Brand-name hotels are a critic

Question 13

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 the graphs in 17-3.Which panel is consistent with a celebrity announcing her endorsement of a specific brand's product?

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 14

When McDonald's opens a store in Dhaka, Bangladesh, it will have an incentive to set product quality and customer service consistent with local standards.

Accepted Answer

A) True 
 B)False

Question 15

In the long-run equilibrium, a monopolistically competitive firm makes zero profit because:

Accepted Answer

A) marginal revenue will equal marginal cost 
B) price will equal marginal cost 
C) marginal cost intersects the minimum of average total cost 
D) price will equal average total cost 
A) marginal revenue will equal marginal cost 
B) price will equal marginal cost 
C) marginal cost intersects the minimum of average total cost 
D) price will equal average total cost

Question 16

When a profit-maximising firm in a monopolistically competitive market is producing the short-run equilibrium quantity:

Accepted Answer

A) it will be earning economic profits 
B) its demand curve will be tangent to its average total cost curve 
C) its demand curve can be above, below or be tangent to its average total cost curve 
D) its marginal revenue will exceed marginal cost 
A) it will be earning economic profits 
B) its demand curve will be tangent to its average total cost curve 
C) its demand curve can be above, below or be tangent to its average total cost curve 
D) its marginal revenue will exceed marginal cost

Question 17

When advertising is used to strengthen brand loyalty:

Accepted Answer

A) consumers become less sensitive to price differences among similar goods 
B) demand for the product becomes more elastic 
C) firms should lower price to increase revenue 
D) consumer demand for related products is typically unaffected 
A) consumers become less sensitive to price differences among similar goods 
B) demand for the product becomes more elastic 
C) firms should lower price to increase revenue 
D) consumer demand for related products is typically unaffected

Question 18

Refer to the information provided.Under what circumstances will both firms choose to advertise?

Accepted Answer

A) if advertising lead to 2.5 million customers trying product A once 
B) if marginal costs lowered to $0.50 
C) if there was more competition in the industry 
D) if advertising costs lowered to $15 million 
A) if advertising lead to 2.5 million customers trying product A once 
B) if marginal costs lowered to $0.50 
C) if there was more competition in the industry 
D) if advertising costs lowered to $15 million

Question 19

A firm in a monopolistically competitive market operates on the:

Accepted Answer

A) rising portion of its average total cost curve 
B) declining portion of its average total cost curve 
C) rising portion of its demand curve 
D) rising portion of its supply curve 
A) rising portion of its average total cost curve 
B) declining portion of its average total cost curve 
C) rising portion of its demand curve 
D) rising portion of its supply curve

Question 20

The main reason that a monopolistically competitive market is considered inefficient is because:

Accepted Answer

A) marginal cost exceeds average revenue 
B) excess capacity is a short-run problem 
C) prices exceed average total cost 
D) price exceeds marginal cost 
A) marginal cost exceeds average revenue 
B) excess capacity is a short-run problem 
C) prices exceed average total cost 
D) price exceeds marginal cost

Exam 16: Monopolistic Competition

If brand names are efficient market mechanisms, banning them will lead to less competition and higher prices in the markets brand names from which they are absent.

Excess capacity:

Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a shift in:

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

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation.Firms will thus work harder to maintain high quality.

In centrally planned economies the usefulness of brand names is demonstrated when brand names allow consumers to identify producers.

A monopolistically competitive market can have too many firms enter, that is, the number of firms in a market can be greater than the socially optimal number.For there to be too much entry, which of the following needs to occur?

Graph 17-4 -Refer to Graph 17-4.Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:

Critics of advertising make which of the following claims? (i) advertising is informational rather than psychological (ii) advertising manipulates people's tastes (iii) advertising costs generally exceed labour costs

What is the main point of difference between a monopolistically competitive market and an oligopoly?

As developing countries make the transition to market-based economies, one of the first major capital investments is in 'Western-quality' hotels.Explain why the establishment of brand-name hotel accommodation is a critical step in attracting foreign investment.

When McDonald's opens a store in Dhaka, Bangladesh, it will have an incentive to set product quality and customer service consistent with local standards.

In the long-run equilibrium, a monopolistically competitive firm makes zero profit because:

When a profit-maximising firm in a monopolistically competitive market is producing the short-run equilibrium quantity:

When advertising is used to strengthen brand loyalty:

Refer to the information provided.Under what circumstances will both firms choose to advertise?

A firm in a monopolistically competitive market operates on the:

The main reason that a monopolistically competitive market is considered inefficient is because:

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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