Question 1

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 to the left. 
B) shift to the right. 
C) shift in a direction that is unpredictable without further information. 
D) remain unchanged.It is the supply curve that will shift. 
A) shift to the left. 
B) shift to the right. 
C) shift in a direction that is unpredictable without further information. 
D) remain unchanged.It is the supply curve that will shift.

Question 2

Which of the following statements regarding monopolistic competition is false?

Accepted Answer

A) In the long-run equilibrium, price equals average total cost. 
B) In the long-run equilibrium, firms earn zero economic profit. 
C) In the long-run equilibrium, firms charge a price above marginal cost. 
D) In the long-run equilibrium, firms produce a quantity in excess of their efficient scale. 
A) In the long-run equilibrium, price equals average total cost. 
B) In the long-run equilibrium, firms earn zero economic profit. 
C) In the long-run equilibrium, firms charge a price above marginal cost. 
D) In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.

Question 3

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

Accepted Answer

A) there are barriers to entry. 
B) all firms can eventually earn economic profits. 
C) each of the sellers offers a somewhat different product. 
D) strategic interactions between firms is vitally important. 
A) there are barriers to entry. 
B) all firms can eventually earn economic profits. 
C) each of the sellers offers a somewhat different product. 
D) strategic interactions between firms is vitally important.

Question 4

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 5

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

A) increase elasticity of demand for the advertised product. 
B) reduce the ability of markets to allocate resources efficiently. 
C) provide a signal of product quality. 
D) be useful only for psychological effects. 
A) increase elasticity of demand for the advertised product. 
B) reduce the ability of markets to allocate resources efficiently. 
C) provide a signal of product quality. 
D) be useful only for psychological effects.

Question 6

Table 17-1
  
-Refer to Table 17-1.This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm.What price will this firm charge to maximize profit?

Accepted Answer

A) $6 
B) $7 
C) $8 
D) $9 
A) $6 
B) $7 
C) $8 
D) $9

Question 7

The product-variety externality is associated with

Accepted Answer

A) the producer surplus that accrues to incumbent firms in a monopolistically competitive industry. 
B) loss of consumer surplus from exposure to additional advertising. 
C) the consumer surplus that is generated from the introduction of a new product. 
D) the opportunity cost of firms exiting a monopolistically competitive industry. 
A) the producer surplus that accrues to incumbent firms in a monopolistically competitive industry. 
B) loss of consumer surplus from exposure to additional advertising. 
C) the consumer surplus that is generated from the introduction of a new product. 
D) the opportunity cost of firms exiting a monopolistically competitive industry.

Question 8

The debate over the efficiency of markets in which products with brand names are sold

Accepted Answer

A) is framed by the role of regulation in advertising. 
B) is likely to be resolved by reference to anecdotal evidence. 
C) hinges on whether consumers are rational in their choices. 
D) hinges on the effectiveness of advertising which identifies price differences. 
A) is framed by the role of regulation in advertising. 
B) is likely to be resolved by reference to anecdotal evidence. 
C) hinges on whether consumers are rational in their choices. 
D) hinges on the effectiveness of advertising which identifies price differences.

Question 9

Advertising

Accepted Answer

A) provides information about products, including prices and seller locations. 
B) has been proven to increase competition and reduce prices compared to markets without advertising. 
C) signals quality to consumers, since advertising is expensive. 
D) All of the above are correct. 
A) provides information about products, including prices and seller locations. 
B) has been proven to increase competition and reduce prices compared to markets without advertising. 
C) signals quality to consumers, since advertising is expensive. 
D) All of the above are correct.

Question 10

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

Accepted Answer

Monopolistically competitive f

Question 11

Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name)sells for $3.00,while a six-pack of Uncle Don's cola (not a brand name)sells for $1.50.Even defenders of brand names would have to admit that

Accepted Answer

A) no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola. 
B) the side-by-side presence of these two colas conveys no useful information to consumers. 
C) Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name. 
D) None of the above is correct. 
A) no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola. 
B) the side-by-side presence of these two colas conveys no useful information to consumers. 
C) Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name. 
D) None of the above is correct.

Question 12

New firms will likely enter a monopolistically competitive market when price exceeds

Accepted Answer

A) marginal revenue. 
B) average revenue. 
C) marginal cost. 
D) average total cost. 
A) marginal revenue. 
B) average revenue. 
C) marginal cost. 
D) average total cost.

Question 13

Figure 17-2
  
-Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

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

In the long run,

Accepted Answer

A) monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. 
B) monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down. 
C) both monopolistically competitive and perfectly competitive firms produce where P = MC. 
D) both monopolistically competitive and perfectly competitive firms produce where P = ATC. 
A) monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. 
B) monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down. 
C) both monopolistically competitive and perfectly competitive firms produce where P = MC. 
D) both monopolistically competitive and perfectly competitive firms produce where P = ATC.

Question 15

When a firm's demand curve is tangent to its average total cost curve,the

Accepted Answer

A) firm's economic profit is zero. 
B) firm must be earning economic profits. 
C) firm must be incurring economic losses. 
D) firm must be operating at its efficient scale. 
A) firm's economic profit is zero. 
B) firm must be earning economic profits. 
C) firm must be incurring economic losses. 
D) firm must be operating at its efficient scale.

Question 16

Ignoring oligopoly and focusing on the other three market structures,in which of those market structures does a profit-maximizing firm experience zero economic profit?

Accepted Answer

A) Perfect competition only 
B) Perfect competition and monopolistic competition only 
C) Perfect competition, monopolistic competition, and monopoly 
D) The answer cannot be determined without knowing whether the market is in the long run or short run. 
A) Perfect competition only 
B) Perfect competition and monopolistic competition only 
C) Perfect competition, monopolistic competition, and monopoly 
D) The answer cannot be determined without knowing whether the market is in the long run or short run.

Question 17

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

Accepted Answer

Brand-name hotels are a critic

Question 18

The primary claim of defenders of advertising is that it

Accepted Answer

A) conveys information about firm profitability. 
B) is psychological rather than informational. 
C) enhances the information available to consumers. 
D) reduces the elasticity of demand for a firm's product. 
A) conveys information about firm profitability. 
B) is psychological rather than informational. 
C) enhances the information available to consumers. 
D) reduces the elasticity of demand for a firm's product.

Question 19

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.

Accepted Answer

A) True 
 B)False

Question 20

In which of the following product markets are we likely to observe the largest amount of advertising?

Accepted Answer

A) Markets with highly differentiated products 
B) Perfectly competitive markets 
C) Markets in which industrial products are sold 
D) Markets in which there is very little difference between different firms' products 
A) Markets with highly differentiated products 
B) Perfectly competitive markets 
C) Markets in which industrial products are sold 
D) Markets in which there is very little difference between different firms' products

Exam 17: Monopolistic Competition

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

Which of the following statements regarding monopolistic competition is false?

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

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.

Advertising that uses celebrity endorsements is most likely intended to

Table 17-1 -Refer to Table 17-1.This table shows the demand schedule,marginal cost,and average total cost for a monopolistically competitive firm.What price will this firm charge to maximize profit?

The product-variety externality is associated with

The debate over the efficiency of markets in which products with brand names are sold

Advertising

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

Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name)sells for $3.00,while a six-pack of Uncle Don's cola (not a brand name)sells for $1.50.Even defenders of brand names would have to admit that

New firms will likely enter a monopolistically competitive market when price exceeds

Figure 17-2 -Refer to Figure 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

In the long run,

When a firm's demand curve is tangent to its average total cost curve,the

Ignoring oligopoly and focusing on the other three market structures,in which of those market structures does a profit-maximizing firm experience zero economic profit?

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

The primary claim of defenders of advertising is that it

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door,since a sale to that customer will not increase the firm's profit.

In which of the following product markets are we likely to observe the largest amount of advertising?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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

Five Debates Over Macroeconomic Policy

Filters