Question 1

A downward-sloping demand curve

Accepted Answer

A) is a feature of all monopolistically competitive firms. 
B) means that the firm in question will never experience a zero profit. 
C) causes marginal revenue to exceed price. 
D) prohibits firms from earning positive economic profits in the long run. 
A) is a feature of all monopolistically competitive firms. 
B) means that the firm in question will never experience a zero profit. 
C) causes marginal revenue to exceed price. 
D) prohibits firms from earning positive economic profits in the long run.

Question 2

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e.,on an average night,80 percent of the hotel rooms are full).This kind of excess capacity is indicative of what kind of market?

Accepted Answer

A) Monopoly 
B) Perfect competition 
C) Monopolistic competition 
D) Oligopoly 
A) Monopoly 
B) Perfect competition 
C) Monopolistic competition 
D) Oligopoly

Question 3

ABC Company knows that it produces and sells a very good mouse trap.XYZ Company knows that it produces and sells a lousy mouse trap.According to the "signaling theory" of advertising,the quality difference likely produces the result that

Accepted Answer

A) both ABC and XYZ have incentives to spend large amounts of money on advertising their mouse traps. 
B) ABC has an incentive to spend a large amount of money on advertising its mouse trap, but XYZ does not. 
C) XYZ has an incentive to spend a large amount of money on advertising its mouse trap, but ABC does not. 
D) neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mouse traps. 
A) both ABC and XYZ have incentives to spend large amounts of money on advertising their mouse traps. 
B) ABC has an incentive to spend a large amount of money on advertising its mouse trap, but XYZ does not. 
C) XYZ has an incentive to spend a large amount of money on advertising its mouse trap, but ABC does not. 
D) neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mouse traps.

Question 4

Product differentiation causes the seller of a good to face what type of demand curve?

Accepted Answer

A) Downward sloping 
B) Vertical 
C) Horizontal 
D) Any of the above could be correct since product differentiation does not affect the shape of the demand curve. 
A) Downward sloping 
B) Vertical 
C) Horizontal 
D) Any of the above could be correct since product differentiation does not affect the shape of the demand curve.

Question 5

Edward Chamberlin argued that brand names

Accepted Answer

A) hampered market efficiency. 
B) were instrumental in enhancing market efficiency. 
C) were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks. 
D) were likely to be more socially efficient when used in conjunction with advertising. 
A) hampered market efficiency. 
B) were instrumental in enhancing market efficiency. 
C) were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks. 
D) were likely to be more socially efficient when used in conjunction with advertising.

Question 6

Figure 17-6
  
-Refer to Figure 17-6.The firm in this figure is monopolistically competitive.It illustrates

Accepted Answer

A) the shut-down case. 
B) a long-run economic profit. 
C) a short-run economic profit. 
D) a short-run loss. 
A) the shut-down case. 
B) a long-run economic profit. 
C) a short-run economic profit. 
D) a short-run loss.

Question 7

To maximize its profit,a monopolistically competitive firm

Accepted Answer

A) takes the price as given and chooses its quantity, just as a competitive firm does. 
B) takes the price as given and chooses its quantity, just as a colluding oligopolist does. 
C) chooses its quantity and price, just as a competitive firm does. 
D) chooses its quantity and price, just as a monopoly does. 
A) takes the price as given and chooses its quantity, just as a competitive firm does. 
B) takes the price as given and chooses its quantity, just as a colluding oligopolist does. 
C) chooses its quantity and price, just as a competitive firm does. 
D) chooses its quantity and price, just as a monopoly does.

Question 8

Scenario 17-2
Consider the problem facing two firms, Firm A and Firm B, 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 $4. Assume that the marginal cost for each new menu item is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product. Firm A 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. Firm B'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, Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 24 million units.
-Refer to Scenario 17-2.On the basis of a theory that people buy a product because it is advertised,the content of advertisements for Firm B's product

Accepted Answer

A) should focus on quality comparisons in order to be successful. 
B) should definitely include celebrity endorsements in order to be successful. 
C) is critical to the success of the product in the market. 
D) is irrelevant to the success of the advertisement. 
A) should focus on quality comparisons in order to be successful. 
B) should definitely include celebrity endorsements in order to be successful. 
C) is critical to the success of the product in the market. 
D) is irrelevant to the success of the advertisement.

Question 9

Figure 17-3
The lines in the figures below illustrate the potential effect of entry and exit in a monopolistically competitive market on either the demand curve or the marginal cost curve of existing firms.
  
-Refer to Figure 17-3.Panel (d)illustrates the change that would occur if existing firms faced

Accepted Answer

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

Question 10

In a small college town,four microbreweries have opened in the last two years.Demonstrate the effect of these new market entrants on demand for existing firms (microbreweries)that already served this market.Assume that the local community now places a moratorium on new liquor licenses for microbreweries.How will this moratorium affect the long-run profitability of incumbent firms?

Accepted Answer

@#IMG-DLM& The arrival of a new entrant should be

Question 11

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

Accepted Answer

A) True 
 B)False

Question 12

List five goods that are likely sold in a monopolistically competitive market.

Accepted Answer

Books,CDs,movies,com

Question 13

For a profit-maximizing firm in a monopolistically competitive market,when price is equal to average total cost,price must lie above marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

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 15

The entry of new firms into a monopolistically competitive market is accompanied by

Accepted Answer

A) both positive and negative externalities. 
B) only positive externalities. 
C) only negative externalities. 
D) only private profit opportunities (no externalities). 
A) both positive and negative externalities. 
B) only positive externalities. 
C) only negative externalities. 
D) only private profit opportunities (no externalities).

Question 16

Which of the following markets would most likely be represented by monopolistic competition?

Accepted Answer

A) The market for corn. 
B) The market for cable television service. 
C) The market for #2 wooden pencils. 
D) The market for clothing. 
A) The market for corn. 
B) The market for cable television service. 
C) The market for #2 wooden pencils. 
D) The market for clothing.

Question 17

In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

Accepted Answer

A) referred the matters of advertising restrictions to executive regulators. 
B) enforced industry-wide agreements to restrict advertising. 
C) been silent on the effect of explicit advertising restrictions. 
D) overturned laws that prohibit advertising. 
A) referred the matters of advertising restrictions to executive regulators. 
B) enforced industry-wide agreements to restrict advertising. 
C) been silent on the effect of explicit advertising restrictions. 
D) overturned laws that prohibit advertising.

Question 18

Brand names are rarely used to convey information about product quality.

Accepted Answer

A) True 
 B)False

Question 19

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

Accepted Answer

A) price exceeds marginal cost. 
B) marginal revenue exceeds marginal cost. 
C) marginal cost exceeds average revenue. 
D) price equals marginal revenue. 
A) price exceeds marginal cost. 
B) marginal revenue exceeds marginal cost. 
C) marginal cost exceeds average revenue. 
D) price equals marginal revenue.

Question 20

Which of the following statements is false?

Accepted Answer

A) The typical monopolistically competitive firm could reduce its average total cost if it produced more output. 
B) Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. 
C) Expensive advertising might help consumers if it is a signal that the product is good. 
D) Brand names acquired at great cost might help consumers by assuring quality. 
A) The typical monopolistically competitive firm could reduce its average total cost if it produced more output. 
B) Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. 
C) Expensive advertising might help consumers if it is a signal that the product is good. 
D) Brand names acquired at great cost might help consumers by assuring quality.

Exam 17: Monopolistic Competition

A downward-sloping demand curve

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e.,on an average night,80 percent of the hotel rooms are full).This kind of excess capacity is indicative of what kind of market?

ABC Company knows that it produces and sells a very good mouse trap.XYZ Company knows that it produces and sells a lousy mouse trap.According to the "signaling theory" of advertising,the quality difference likely produces the result that

Product differentiation causes the seller of a good to face what type of demand curve?

Edward Chamberlin argued that brand names

Figure 17-6 -Refer to Figure 17-6.The firm in this figure is monopolistically competitive.It illustrates

To maximize its profit,a monopolistically competitive firm

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

List five goods that are likely sold in a monopolistically competitive market.

For a profit-maximizing firm in a monopolistically competitive market,when price is equal to average total cost,price must lie above marginal cost.

According to the "signaling theory" of advertising,consumers

The entry of new firms into a monopolistically competitive market is accompanied by

Which of the following markets would most likely be represented by monopolistic competition?

In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

Brand names are rarely used to convey information about product quality.

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

Which of the following statements is false?

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