Question 1

When advertising is used to relay information about price,each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 2

According to the signaling theory of advertising,consumers

Accepted Answer

A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements. 
A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements.

Question 3

Figure 16-1. The figure is drawn for a monopolistically competitive firm.
  
-Refer to Figure 16-1.Suppose ATC = $18 when Q = 12.Then the

Accepted Answer

A)  firm is in a long-run equilibrium when it produces 12 units of output. 
B)  firm is in a long-run equilibrium when it produces 16 units of output. 
C)  best the firm can do is sustain a loss of $24. 
D)  best the firm can do is earn a profit of $48. 
A)  firm is in a long-run equilibrium when it produces 12 units of output. 
B)  firm is in a long-run equilibrium when it produces 16 units of output. 
C)  best the firm can do is sustain a loss of $24. 
D)  best the firm can do is earn a profit of $48.

Question 4

Scenario 16-4
Consider the problem facing two firms, Burger Prince and McDaniel's, in the fast-food restaurant market. Each firm has just come up with an idea for a new fast-food menu item which it would sell for $5. Assume that the marginal cost for each new menu item is a constant $3, and the only fixed cost is for advertising. Each company knows that if it spends $16 million on advertising it will get 2 million consumers to try its new product. Burger Prince has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 2 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. McDaniel's'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, McDaniel's estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 32 million units.
-Refer to Scenario 16-4.By its willingness to spend money on advertising,McDaniel's

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 Burger Prince 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 Burger Prince out of the market.

Question 5

Table 16-6
Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling.
  
-Refer to Table 16-6.Suppose the government forced Traci's to produce at the efficient scale of output.Who would be better off as a result of this policy? Who would be worse off as a result of this policy?

Accepted Answer

A)  Traci's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Traci's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off. 
A)  Traci's would be better off; consumers would be worse off. 
B)  Consumers would be better off; Traci's would be worse off. 
C)  No one would be better off; consumers would be worse off. 
D)  No one would be better off; no one would be worse off.

Question 6

In a monopolistically competitive market,social welfare would be enhanced if

Accepted Answer

A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly. 
A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly.

Question 7

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 8

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Accepted Answer

A)  P > AR 
B)  MR > MC 
C)  P > MC 
D)  All of the above are correct. 
A)  P > AR 
B)  MR > MC 
C)  P > MC 
D)  All of the above are correct.

Question 9

Figure 16-2
This figure depicts a situation in a monopolistically competitive market.
  
-Refer to Figure 16-2.How much profit will the monopolistically competitive firm earn in this situation?

Accepted Answer

A)  $0 
B)  $80 
C)  $200 
D)  $400 
A)  $0 
B)  $80 
C)  $200 
D)  $400

Question 10

To maximize its profit,a monopolistically competitive firm chooses its level of output by looking for the level of output at which

Accepted Answer

A)  price equals marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  average total cost is minimized. 
D)  All of the above are correct. 
A)  price equals marginal cost. 
B)  marginal revenue equals marginal cost. 
C)  average total cost is minimized. 
D)  All of the above are correct.

Question 11

The typical firm in the US economy

Accepted Answer

A)  has some degree of market power. 
B)  sells its product for a price that is equal to the marginal cost of producing the last unit. 
C)  is perfectly competitive. 
D)  is a monopoly. 
A)  has some degree of market power. 
B)  sells its product for a price that is equal to the marginal cost of producing the last unit. 
C)  is perfectly competitive. 
D)  is a monopoly.

Question 12

Figure 16-6
  
-Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d),it would

Accepted Answer

A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity. 
A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity.

Question 13

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for each industry.
  
-Refer to Table 16-2.Which industry is the least competitive?

Accepted Answer

A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D 
A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D

Question 14

Monopolistic competition is an

Accepted Answer

A)  efficient market structure because long-run profits are zero. 
B)  efficient market structure because each firm produces at its efficient scale. 
C)  inefficient market structure because there is deadweight loss. 
D)  Both a and b are correct. 
A)  efficient market structure because long-run profits are zero. 
B)  efficient market structure because each firm produces at its efficient scale. 
C)  inefficient market structure because there is deadweight loss. 
D)  Both a and b are correct.

Question 15

A monopolistically competitive firm is currently producing 10 units of output.At this level of output the firm is charging a price equal to $10,has marginal revenue equal to $6,has marginal cost equal to $6,and has average total cost equal to $12.From this information we can infer that

Accepted Answer

A)  the firm is currently maximizing its profit. 
B)  the profits of the firm are negative. 
C)  firms are likely to leave this market in the long run. 
D)  All of the above are correct. 
A)  the firm is currently maximizing its profit. 
B)  the profits of the firm are negative. 
C)  firms are likely to leave this market in the long run. 
D)  All of the above are correct.

Question 16

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Accepted Answer

Advertising provides information to cons

Question 17

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

Accepted Answer

A) True 
 B)False

Question 18

A monopolistically competitive firm has the following cost structure:  
The firm faces the following demand curve:
 
If the government forces this firm to produce at its efficient scale,it will

Accepted Answer

A)  produce 3 units and make $9. 
B)  produce 4 units and make $6. 
C)  produce 5 units and lose $5. 
D)  produce 7 units and lose $49. 
A)  produce 3 units and make $9. 
B)  produce 4 units and make $6. 
C)  produce 5 units and lose $5. 
D)  produce 7 units and lose $49.

Question 19

Economists John Kenneth Galbraith and Friedrich Hayek disagreed about the roles of advertising and government.Which of the following is correct?

Accepted Answer

A)  Galbraith thought advertising artificially enhanced consumers' desires for private goods, while Hayek thought no producer could "determine" consumers' tastes though advertising. 
B)  Galbraith believed in enhancing personal freedoms, while Hayek advocated larger government. 
C)  Galbraith thought advertising was a waste of resources because it did not influence consumers, while Hayek thought advertising was powerful enough to "determine" consumers' tastes. 
D)  Galbraith believed that the government should not interfere in markets, while Hayek believed that there was insufficient government regulation of marketing. 
A)  Galbraith thought advertising artificially enhanced consumers' desires for private goods, while Hayek thought no producer could "determine" consumers' tastes though advertising. 
B)  Galbraith believed in enhancing personal freedoms, while Hayek advocated larger government. 
C)  Galbraith thought advertising was a waste of resources because it did not influence consumers, while Hayek thought advertising was powerful enough to "determine" consumers' tastes. 
D)  Galbraith believed that the government should not interfere in markets, while Hayek believed that there was insufficient government regulation of marketing.

Question 20

In the short run,a firm in a monopolistically competitive market operates much like a

Accepted Answer

A)  firm in a perfectly competitive market. 
B)  firm in an oligopoly. 
C)  monopolist. 
D)  monopsonist. 
A)  firm in a perfectly competitive market. 
B)  firm in an oligopoly. 
C)  monopolist. 
D)  monopsonist.

When advertising is used to relay information about price,each firm is able to enhance market power.

According to the signaling theory of advertising,consumers

Figure 16-1. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose ATC = $18 when Q = 12.Then the

In a monopolistically competitive market,social welfare would be enhanced if

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

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2.How much profit will the monopolistically competitive firm earn in this situation?

To maximize its profit,a monopolistically competitive firm chooses its level of output by looking for the level of output at which

The typical firm in the US economy

Figure 16-6 -Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d),it would

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.Which industry is the least competitive?

Monopolistic competition is an

A monopolistically competitive firm is currently producing 10 units of output.At this level of output the firm is charging a price equal to $10,has marginal revenue equal to $6,has marginal cost equal to $6,and has average total cost equal to $12.From this information we can infer that

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: If the government forces this firm to produce at its efficient scale,it will

Economists John Kenneth Galbraith and Friedrich Hayek disagreed about the roles of advertising and government.Which of the following is correct?

In the short run,a firm in a monopolistically competitive market operates much like a

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.

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.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters

Exam 16: Monopolistic Competition.

When advertising is used to relay information about price,each firm is able to enhance market power.

According to the signaling theory of advertising,consumers

Figure 16-1. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose ATC = $18 when Q = 12.Then the

In a monopolistically competitive market,social welfare would be enhanced if

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

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Figure 16-2 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-2.How much profit will the monopolistically competitive firm earn in this situation?

To maximize its profit,a monopolistically competitive firm chooses its level of output by looking for the level of output at which

The typical firm in the US economy

Figure 16-6 -Refer to Figure 16-6.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d),it would

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.Which industry is the least competitive?

Monopolistic competition is an

A monopolistically competitive firm is currently producing 10 units of output.At this level of output the firm is charging a price equal to $10,has marginal revenue equal to $6,has marginal cost equal to $6,and has average total cost equal to $12.From this information we can infer that

Assume the role of a defender of advertising.Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: If the government forces this firm to produce at its efficient scale,it will

Economists John Kenneth Galbraith and Friedrich Hayek disagreed about the roles of advertising and government.Which of the following is correct?

In the short run,a firm in a monopolistically competitive market operates much like a

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.

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.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters