Question 1

One theory of advertising suggests that

Accepted Answer

A) information on price is always a necessary ingredient of effective advertising. 
B) the content of advertising may be irrelevant to product success in the market. 
C) celebrity advertising is not effective in retail food markets. 
D) Post and Kellogg should not advertise new cereals. 
A) information on price is always a necessary ingredient of effective advertising. 
B) the content of advertising may be irrelevant to product success in the market. 
C) celebrity advertising is not effective in retail food markets. 
D) Post and Kellogg should not advertise new cereals.

Question 2

Entry by new firms into a monopolistically competitive market

Accepted Answer

A) creates additional consumer surplus. 
B) imposes a positive externality on existing firms. 
C) leads to the same externalities that are observed when new firms enter a perfectly competitive market. 
D) increases the demand for existing firms' products. 
A) creates additional consumer surplus. 
B) imposes a positive externality on existing firms. 
C) leads to the same externalities that are observed when new firms enter a perfectly competitive market. 
D) increases the demand for existing firms' products.

Question 3

A monopolistically competitive market is characterized by barriers to entry.

Accepted Answer

A) True 
 B)False

Question 4

When a firm operates at efficient scale,it is producing at the minimum point on its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following goods are not likely to be sold in monopolistically competitive markets?

Accepted Answer

A) Compact discs 
B) Books 
C) Cookies 
D) Wheat 
A) Compact discs 
B) Books 
C) Cookies 
D) Wheat

Question 6

In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome? (i)	Perfect competition
(ii)	Monopolistic competition
(iii)	Monopoly

Accepted Answer

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

Question 7

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

Accepted Answer

A) a change in the technology that the firm utilizes. 
B) a shift of its demand curve. 
C) a shift of its supply curve. 
D) an increase in the firm's average cost of production. 
A) a change in the technology that the firm utilizes. 
B) a shift of its demand curve. 
C) a shift of its supply curve. 
D) an increase in the firm's average cost of production.

Question 8

Select the type of market that is described by the following attributes: many firms,differentiated products,and free entry.

Accepted Answer

A) Natural monopoly 
B) Perfectly competition 
C) Monopolistic competition 
D) Monopoly 
A) Natural monopoly 
B) Perfectly competition 
C) Monopolistic competition 
D) Monopoly

Question 9

Critics of advertising argue that advertising

Accepted Answer

A) creates demand for products that people otherwise do not want or need. 
B) lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C) increases competition by providing information about prices. 
D) encourages monopolization of markets by raising entry barriers too high. 
A) creates demand for products that people otherwise do not want or need. 
B) lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C) increases competition by providing information about prices. 
D) encourages monopolization of markets by raising entry barriers too high.

Question 10

When a firm operates with excess capacity,it must be in a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 11

On a vacation to Cancun,Mexico,you find yourself eating every meal at the local McDonald's rather than having a hamburger from one of the street vendors.Your traveling companion claims that you are irrational,since you never eat McDonald's hamburgers when you are home and McDonald's hamburgers cost more than those prepared and sold by Cancun's street vendors.An economist would most likely explain your behavior by suggesting that

Accepted Answer

A) your behavior is rational, but your friend's behavior is clearly irrational. 
B) you are clearly irrational. 
C) the McDonald's brand name suggests consistent quality. 
D) the advertising by McDonalds in Cancun is more persuasive than the advertising by McDonalds in your home town. 
A) your behavior is rational, but your friend's behavior is clearly irrational. 
B) you are clearly irrational. 
C) the McDonald's brand name suggests consistent quality. 
D) the advertising by McDonalds in Cancun is more persuasive than the advertising by McDonalds in your home town.

Question 12

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.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; Consumers 
B) Consumers; Traci's 
C) No one; Consumers 
D) No one; No one 
A) Traci's; Consumers 
B) Consumers; Traci's 
C) No one; Consumers 
D) No one; No one

Question 13

Excess capacity characterizes firms in monopolistically competitive markets,even in situations of long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 14

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Accepted Answer

A) there are too few firms to reach an efficient level of production. 
B) firms do not operate at the output that minimizes average costs. 
C) advertising is not used extensively enough to yield an efficient differentiation of the products. 
D) consumers do not have enough choice among the product varieties available. 
A) there are too few firms to reach an efficient level of production. 
B) firms do not operate at the output that minimizes average costs. 
C) advertising is not used extensively enough to yield an efficient differentiation of the products. 
D) consumers do not have enough choice among the product varieties available.

Question 15

When quality cannot be easily judged in advance,what provides consumers with information about the quality of a product?

Accepted Answer

A) A brand name 
B) A tie-in 
C) The quantity available for sale 
D) The amount of deadweight loss 
A) A brand name 
B) A tie-in 
C) The quantity available for sale 
D) The amount of deadweight loss

Question 16

For a profit-maximizing monopolistically competitive firm,price exceeds marginal cost

Accepted Answer

A) in the short run but not in the long run. 
B) in the long run but not in the short run. 
C) in both the short run and the long run. 
D) in neither the short run nor the long run. 
A) in the short run but not in the long run. 
B) in the long run but not in the short run. 
C) in both the short run and the long run. 
D) in neither the short run nor the long run.

Question 17

When a market is monopolistically competitive,the typical firm in the market is likely to experience a

Accepted Answer

A) positive profit in the short run and in the long run. 
B) positive or negative profit in the short run and a zero profit in the long run. 
C) zero profit in the short run and a positive or negative profit in the long run. 
D) zero profit in the short run and in the long run. 
A) positive profit in the short run and in the long run. 
B) positive or negative profit in the short run and a zero profit in the long run. 
C) zero profit in the short run and a positive or negative profit in the long run. 
D) zero profit in the short run and in the long run.

Question 18

When a firm exits a monopolistically competitive market,the individual demand curves faced by all remaining firms in that market will

Accepted Answer

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

Question 19

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A) A large number of sellers. 
B) Firms are price takers. 
C) There is free entry into the market. 
D) Sellers offer products that are, in some way, different from their competitors' products. 
A) A large number of sellers. 
B) Firms are price takers. 
C) There is free entry into the market. 
D) Sellers offer products that are, in some way, different from their competitors' products.

Question 20

When McDonalds opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in the United States.

Accepted Answer

A) True 
 B)False

Exam 17: Monopolistic Competition

One theory of advertising suggests that

Entry by new firms into a monopolistically competitive market

A monopolistically competitive market is characterized by barriers to entry.

When a firm operates at efficient scale,it is producing at the minimum point on its average total cost curve.

Which of the following goods are not likely to be sold in monopolistically competitive markets?

In which of the following market structures does free entry and exit play an important role in the long-run equilibrium outcome? (i) Perfect competition (ii) Monopolistic competition (iii) Monopoly

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

Select the type of market that is described by the following attributes: many firms,differentiated products,and free entry.

Critics of advertising argue that advertising

When a firm operates with excess capacity,it must be in a monopolistically competitive market.

Excess capacity characterizes firms in monopolistically competitive markets,even in situations of long-run equilibrium.

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

When quality cannot be easily judged in advance,what provides consumers with information about the quality of a product?

For a profit-maximizing monopolistically competitive firm,price exceeds marginal cost

When a market is monopolistically competitive,the typical firm in the market is likely to experience a

When a firm exits a monopolistically competitive market,the individual demand curves faced by all remaining firms in that market will

Which of the following is not a characteristic of monopolistic competition?

When McDonalds opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in the United States.

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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