Question 1

How does advertising signal to consumers that the product is a good one?

Accepted Answer

A) By seeing famous people using the product, consumers infer that they too can be famous. 
B) By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. 
C) By making consumers laugh during commercials, firms are associating positive experiences with the product. 
D) It is not possible, without allowing consumers to actually use the product, for firms to signal to consumers the product's quality. 
A) By seeing famous people using the product, consumers infer that they too can be famous. 
B) By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. 
C) By making consumers laugh during commercials, firms are associating positive experiences with the product. 
D) It is not possible, without allowing consumers to actually use the product, for firms to signal to consumers the product's quality.

Question 2

In the long run,a firm in a perfectly competitive market operates

Accepted Answer

A) at its efficient scale and a monopolistically competitive firm operates at efficient scale. 
B) at its efficient scale and a monopolistically competitive firm operates with excess capacity. 
C) with excess capacity and a monopolistically competitive firm operates with excess capacity. 
D) with excess capacity and a monopolistically competitive firm operates at its efficient scale. 
A) at its efficient scale and a monopolistically competitive firm operates at efficient scale. 
B) at its efficient scale and a monopolistically competitive firm operates with excess capacity. 
C) with excess capacity and a monopolistically competitive firm operates with excess capacity. 
D) with excess capacity and a monopolistically competitive firm operates at its efficient scale.

Question 3

It is a well-publicized fact that television advertisements aired during major sporting events are very expensive.A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

Accepted Answer

A) enhances the effectiveness of the advertisement. 
B) reduces people's willingness to purchase advertised products. 
C) is leaked to discredit the firms that spend so much on advertising. 
D) reduces the effective staying power of a product. 
A) enhances the effectiveness of the advertisement. 
B) reduces people's willingness to purchase advertised products. 
C) is leaked to discredit the firms that spend so much on advertising. 
D) reduces the effective staying power of a product.

Question 4

Table 17-3
Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for Traci's Hairstyling.
  
-Refer to Table 17-3.What is the profit-maximizing output for Traci's Hairstyling?

Accepted Answer

A) 3 hair treatments 
B) 4 hair treatments 
C) 5 hair treatments 
D) 6 hair treatments 
A) 3 hair treatments 
B) 4 hair treatments 
C) 5 hair treatments 
D) 6 hair treatments

Question 5

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

Accepted Answer

A) the demand curve will be perfectly elastic. 
B) price exceeds marginal cost. 
C) marginal cost must be falling. 
D) marginal revenue exceeds marginal cost. 
A) the demand curve will be perfectly elastic. 
B) price exceeds marginal cost. 
C) marginal cost must be falling. 
D) marginal revenue exceeds marginal cost.

Question 6

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A) firms would most likely experience economic losses. 
B) firms would also operate at their efficient scale. 
C) new firms would likely to enter the market. 
D) the most efficient firms would not likely to be affected. 
A) firms would most likely experience economic losses. 
B) firms would also operate at their efficient scale. 
C) new firms would likely to enter the market. 
D) the most efficient firms would not likely to be affected.

Question 7

A monopolistically competitive market

Accepted Answer

A) usually has too many firms, reducing the economic profit of each firm to zero. 
B) usually has too few firms, reducing the product variety for consumers. 
C) may have too many or too few firms, and the government can intervene to achieve the optimal number of firms. 
D) may have too many or too few firms, but the government can do little to rectify the situation. 
A) usually has too many firms, reducing the economic profit of each firm to zero. 
B) usually has too few firms, reducing the product variety for consumers. 
C) may have too many or too few firms, and the government can intervene to achieve the optimal number of firms. 
D) may have too many or too few firms, but the government can do little to rectify the situation.

Question 8

In monopolistically competitive markets,economic losses

Accepted Answer

A) suggest that some existing firms will exit the market. 
B) suggest that new firms will enter the market. 
C) are minimized through government-imposed barriers to entry. 
D) are never possible. 
A) suggest that some existing firms will exit the market. 
B) suggest that new firms will enter the market. 
C) are minimized through government-imposed barriers to entry. 
D) are never possible.

Question 9

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Accepted Answer

Because its product

Question 10

Figure 17-2
  
-Refer to Figure 17-2.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A) Panel a 
B) Panel b 
C) Panel c 
D) None of the above is correct. 
A) Panel a 
B) Panel b 
C) Panel c 
D) None of the above is correct.

Question 11

Monopolistically competitive markets may be socially inefficient because

Accepted Answer

A) most firms produce inferior products. 
B) government programs cannot effectively regulate price. 
C) firms earn zero economic profit. 
D) the market may have too much or too little entry by new firms. 
A) most firms produce inferior products. 
B) government programs cannot effectively regulate price. 
C) firms earn zero economic profit. 
D) the market may have too much or too little entry by new firms.

Question 12

Figure 17-4
  
-Refer to Figure 17-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

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 13

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

Accepted Answer

A) increase the elasticity of demand for differentiated products. 
B) enhance competition, and encourage more product diversity. 
C) reduce competition and reduce social welfare. 
D) encourage the consumption of all homogenous goods. 
A) increase the elasticity of demand for differentiated products. 
B) enhance competition, and encourage more product diversity. 
C) reduce competition and reduce social welfare. 
D) encourage the consumption of all homogenous goods.

Question 14

A firm has the following cost structure:  
If this firm is in a typical perfectly competitive market,in the long run it will likely produce

Accepted Answer

A) 4 or fewer units of output. 
B) 5 units of output. 
C) more than 5 units of output. 
D) None of the above are necessarily correct because there is not enough information to tell. 
A) 4 or fewer units of output. 
B) 5 units of output. 
C) more than 5 units of output. 
D) None of the above are necessarily correct because there is not enough information to tell.

Question 15

Which of the following markets impose deadweight losses on society? (i)	Perfect competition
(ii)	Monopolistic competition
(iii)	Monopoly

Accepted Answer

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

Question 16

When firms in a monopolistically competitive market engage in price-related advertising,defenders of advertising argue that

Accepted Answer

A) the quality of products sold in the market always increases. 
B) customers are less likely to be informed about other characteristics of the product. 
C) new firms are discouraged from entering the market. 
D) each firm has less market power. 
A) the quality of products sold in the market always increases. 
B) customers are less likely to be informed about other characteristics of the product. 
C) new firms are discouraged from entering the market. 
D) each firm has less market power.

Question 17

Your company has recently requested that you travel to Dhaka,Bangladesh,to work on negotiations for a new factory to be located in one of the port cities.Your travel agent provides a list of several hundred local hotels,and a Sheraton.In this case,the Sheraton brand-name is likely to be used as a signal of

Accepted Answer

A) perceived differences that are not likely to exist among your various options. 
B) quality when quality cannot be easily judged. 
C) inefficiency in markets characterized by recognizable brand names. 
D) the quality of general lodging accommodations in Dhaka. 
A) perceived differences that are not likely to exist among your various options. 
B) quality when quality cannot be easily judged. 
C) inefficiency in markets characterized by recognizable brand names. 
D) the quality of general lodging accommodations in Dhaka.

Question 18

The free entry and exit of firms in a monopolistically competitive market guarantees that

Accepted Answer

A) both economic profits and economic losses can persist in the long run. 
B) both economic profits and economic losses disappear in the long run. 
C) economic profits, but not economic losses, can persist in the long run. 
D) economic losses, but not economic profits, can persist in the long run. 
A) both economic profits and economic losses can persist in the long run. 
B) both economic profits and economic losses disappear in the long run. 
C) economic profits, but not economic losses, can persist in the long run. 
D) economic losses, but not economic profits, can persist in the long run.

Question 19

A monopolistically competitive market could be considered inefficient because

Accepted Answer

A) marginal revenue exceeds average revenue. 
B) price exceeds marginal cost. 
C) the efficient scale of production is only achieved in the long run, but not in the short run. 
D) markup pricing does not occur in any other market structure. 
A) marginal revenue exceeds average revenue. 
B) price exceeds marginal cost. 
C) the efficient scale of production is only achieved in the long run, but not in the short run. 
D) markup pricing does not occur in any other market structure.

Question 20

A profit-maximizing firm in a monopolistically competitive market always prices its product at some markup over marginal cost.

Accepted Answer

A) True 
 B)False

Exam 17: Monopolistic Competition

How does advertising signal to consumers that the product is a good one?

In the long run,a firm in a perfectly competitive market operates

It is a well-publicized fact that television advertisements aired during major sporting events are very expensive.A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

Table 17-3 Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for Traci's Hairstyling. -Refer to Table 17-3.What is the profit-maximizing output for Traci's Hairstyling?

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

A monopolistically competitive market

In monopolistically competitive markets,economic losses

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Figure 17-2 -Refer to Figure 17-2.Which of the graphs depicts a monopolistically competitive firm in long-run equilibrium?

Monopolistically competitive markets may be socially inefficient because

Figure 17-4 -Refer to Figure 17-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

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

A firm has the following cost structure: If this firm is in a typical perfectly competitive market,in the long run it will likely produce

Which of the following markets impose deadweight losses on society? (i) Perfect competition (ii) Monopolistic competition (iii) Monopoly

When firms in a monopolistically competitive market engage in price-related advertising,defenders of advertising argue that

The free entry and exit of firms in a monopolistically competitive market guarantees that

A monopolistically competitive market could be considered inefficient because

A profit-maximizing firm in a monopolistically competitive market always prices its product at some markup over marginal cost.

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

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