Question 1

Which of the following best describes the idea of excess capacity in monopolistic competition?

Accepted Answer

A) Firms produce more output than is socially desirable. 
B) The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. 
C) Due to product differentiation, firms choose output levels where P > ATC. 
D) Firms keep some surplus output on hand in case there is a shift in the demand for their product. 
A) Firms produce more output than is socially desirable. 
B) The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. 
C) Due to product differentiation, firms choose output levels where P > ATC. 
D) Firms keep some surplus output on hand in case there is a shift in the demand for their product.

Question 2

When existing firms lose customers and profits due to entry of a new competitor,a

Accepted Answer

A) predatory-pricing externality occurs. 
B) consumption externality occurs. 
C) business-stealing externality occurs. 
D) product-variety externality occurs. 
A) predatory-pricing externality occurs. 
B) consumption externality occurs. 
C) business-stealing externality occurs. 
D) product-variety externality occurs.

Question 3

Critics of advertising argue that in some markets advertising may

Accepted Answer

A) attract products of lower quality into the market. 
B) attract less informed buyers into the market. 
C) decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. 
D) enhance competition in markets to an unnecessary degree. 
A) attract products of lower quality into the market. 
B) attract less informed buyers into the market. 
C) decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. 
D) enhance competition in markets to an unnecessary degree.

Question 4

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

Accepted Answer

A) minimized average total cost. 
B) chosen to produce where demand is unitary elastic. 
C) produced the efficient scale of output. 
D) chosen a quantity of output where average revenue equals average total cost. 
A) minimized average total cost. 
B) chosen to produce where demand is unitary elastic. 
C) produced the efficient scale of output. 
D) chosen a quantity of output where average revenue equals average total cost.

Question 5

Evidence suggests that,in markets with differentiated products but little advertising,

Accepted Answer

A) consumers are not confused by conflicting signals. 
B) in general, firms are less profitable. 
C) markets are less efficient. 
D) consumers make better choices. 
A) consumers are not confused by conflicting signals. 
B) in general, firms are less profitable. 
C) markets are less efficient. 
D) consumers make better choices.

Question 6

For a monopolistically competitive firm,

Accepted Answer

A) marginal revenue and price are the same. 
B) average revenue and price are the same. 
C) at the profit-maximizing quantity of output, price equals marginal cost. 
D) at the profit-maximizing quantity of output, marginal revenue exceeds price. 
A) marginal revenue and price are the same. 
B) average revenue and price are the same. 
C) at the profit-maximizing quantity of output, price equals marginal cost. 
D) at the profit-maximizing quantity of output, marginal revenue exceeds price.

Question 7

As firms exit a monopolistically competitive market,profits of remaining firms

Accepted Answer

A) decline and product diversity in the market decreases. 
B) decline and product diversity in the market increases. 
C) rise and product diversity in the market decreases. 
D) rise and product diversity in the market increases. 
A) decline and product diversity in the market decreases. 
B) decline and product diversity in the market increases. 
C) rise and product diversity in the market decreases. 
D) rise and product diversity in the market increases.

Question 8

Monopolistic competition is considered by some to be inefficient because

Accepted Answer

A) price exceeds marginal cost. 
B) output exceeds capacity output. 
C) long-run profits are positive. 
D) barriers to entry limit the number of firms in the market. 
A) price exceeds marginal cost. 
B) output exceeds capacity output. 
C) long-run profits are positive. 
D) barriers to entry limit the number of firms in the market.

Question 9

Before a new firm enters a monopolistically competitive market with a new product,it considers

Accepted Answer

A) the profit opportunities. 
B) the business-stealing externality. 
C) the product-variety externality. 
D) Both b and c are correct. 
A) the profit opportunities. 
B) the business-stealing externality. 
C) the product-variety externality. 
D) Both b and c are correct.

Question 10

Which of the following statements regarding brand names in advertising is false?

Accepted Answer

A) Brand names provide consumers with information about quality when quality cannot be easily judged in advance of purchase. 
B) Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm. 
C) Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product. 
D) Brand names can cause consumers to perceive differences in products that do not actually exist. 
A) Brand names provide consumers with information about quality when quality cannot be easily judged in advance of purchase. 
B) Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm. 
C) Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product. 
D) Brand names can cause consumers to perceive differences in products that do not actually exist.

Question 11

In many college towns,private independent bookstores typically locate on the periphery of the college campus.However,in some college towns,the University has used political power to restrict private bookstores near campus through community zoning laws.Use your knowledge of markets to predict the price and quality of service difference in the market for college textbooks under these two different market regimes.

Accepted Answer

In monopoly markets,price will

Question 12

Figure 17-4
  
-Refer to Figure 17-4.Panel (a)shows a profit-maximizing monopolistically competitive firm that is

Accepted Answer

A) earning zero economic profit. 
B) likely to exit the market in the long run. 
C) producing its efficient scale of output. 
D) not maximizing its profit. 
A) earning zero economic profit. 
B) likely to exit the market in the long run. 
C) producing its efficient scale of output. 
D) not maximizing its profit.

Question 13

When a firm in a monopolistically competitive market earns zero economic profit,its product price must equal marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

A business-stealing externality

Accepted Answer

A) is an externality that is likely to be punished under antitrust laws. 
B) is the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. 
C) is an externality that is considered to be an explicit cost of business in monopolistically competitive markets. 
D) is the negative externality associated with entry of new firms in a monopolistically competitive market. 
A) is an externality that is likely to be punished under antitrust laws. 
B) is the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. 
C) is an externality that is considered to be an explicit cost of business in monopolistically competitive markets. 
D) is the negative externality associated with entry of new firms in a monopolistically competitive market.

Question 16

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.If the government required Traci's to produce at the efficient scale of output,how many hair treatments would Traci's sell?

Accepted Answer

A) Either 3 or 4 
B) Either 4 or 5 
C) Either 5 or 6 
D) Either 6 or 7 
A) Either 3 or 4 
B) Either 4 or 5 
C) Either 5 or 6 
D) Either 6 or 7

Question 17

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?

Accepted Answer

A) Demand and average variable cost 
B) Demand and average total cost 
C) Marginal revenue and average variable cost 
D) Marginal revenue and average total cost 
A) Demand and average variable cost 
B) Demand and average total cost 
C) Marginal revenue and average variable cost 
D) Marginal revenue and average total cost

Question 18

In a monopolistically competitive market,

Accepted Answer

A) there are only a few sellers. 
B) each firm takes the price of its product as given. 
C) firms can enter or exit the market without restriction. 
D) each firm produces a product that is essentially identical to the products of other firms in the market. 
A) there are only a few sellers. 
B) each firm takes the price of its product as given. 
C) firms can enter or exit the market without restriction. 
D) each firm produces a product that is essentially identical to the products of other firms in the market.

Question 19

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy.Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

Accepted Answer

A) True 
 B)False

Question 20

A monopolistically competitive market

Accepted Answer

A) has some features of monopoly and some features of competition. 
B) has one large, dominant firm and many other smaller firms. 
C) is difficult to enter. 
D) whenever firms earn zero economic profit. 
A) has some features of monopoly and some features of competition. 
B) has one large, dominant firm and many other smaller firms. 
C) is difficult to enter. 
D) whenever firms earn zero economic profit.

Exam 17: Monopolistic Competition

Which of the following best describes the idea of excess capacity in monopolistic competition?

When existing firms lose customers and profits due to entry of a new competitor,a

Critics of advertising argue that in some markets advertising may

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

Evidence suggests that,in markets with differentiated products but little advertising,

For a monopolistically competitive firm,

As firms exit a monopolistically competitive market,profits of remaining firms

Monopolistic competition is considered by some to be inefficient because

Before a new firm enters a monopolistically competitive market with a new product,it considers

Which of the following statements regarding brand names in advertising is false?

Figure 17-4 -Refer to Figure 17-4.Panel (a)shows a profit-maximizing monopolistically competitive firm that is

When a firm in a monopolistically competitive market earns zero economic profit,its product price must equal marginal cost.

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

A business-stealing externality

Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?

In a monopolistically competitive market,

The government of Italy will not allow any Hard Rock Cafe restaurants to open in Italy.Defenders of the efficiency of brand-name markets would argue that this has hindered restaurant market efficiency in Italy.

A monopolistically competitive market

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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