Question 1

Which statement defines business-stealing externality

Accepted Answer

A) It is the positive externality associated with the gains of consumer surplus in a monopolistically competitive market. 
B) It occurs when one firm attempts to exactly duplicate exactly the product of another firm. 
C) It is considered to be an explicit cost of business in monopolistically competitive markets. 
D) It is the negative externality associated with entry of new firms in a monopolistically competitive market. 
A) It is the positive externality associated with the gains of consumer surplus in a monopolistically competitive market. 
B) It occurs when one firm attempts to exactly duplicate exactly the product of another firm. 
C) It is considered to be an explicit cost of business in monopolistically competitive markets. 
D) It is the negative externality associated with entry of new firms in a monopolistically competitive market.

Question 2

According to the signalling theory of advertising,how do consumers respond to advertising

Accepted Answer

A) They pay little or no attention to which firms advertise and which firms do not advertise. 
B) They are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C) They are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D) They gain little or no information about product quality from advertisements. 
A) They pay little or no attention to which firms advertise and which firms do not advertise. 
B) They are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C) They are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D) They gain little or no information about product quality from advertisements.

Question 3

The two cereal makers,Post and Kellogg,have each come up with new cereal recipes.Post chooses not to advertise it,but Kellogg chooses to spend $10 million in advertising.Why do the two companies have different advertising strategies

Accepted Answer

A) Post doesn't advertise its cereal because brand names do not require advertisement. 
B) Post doesn't advertise its cereal because a good quality product doesn't require advertising. 
C) Kellogg advertises its cereal because customers will otherwise not try this new recipe. 
D) Kellogg advertises its cereal because advertising signals the quality of its product. 
A) Post doesn't advertise its cereal because brand names do not require advertisement. 
B) Post doesn't advertise its cereal because a good quality product doesn't require advertising. 
C) Kellogg advertises its cereal because customers will otherwise not try this new recipe. 
D) Kellogg advertises its cereal because advertising signals the quality of its product.

Question 4

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

Accepted Answer

A) True 
 B)False

Question 5

When a leading North American fast-food chain opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in Canada and the United States.

Accepted Answer

A) True 
 B)False

Question 6

What is one way in which monopolistic competition differs from oligopoly

Accepted Answer

A) There are no barriers to entry in oligopolies. 
B) In oligopoly markets there are only a few sellers. 
C) All oligopoly firms eventually earn zero economic profits. 
D) Strategic interactions between firms are rarely evident in oligopolies. 
A) There are no barriers to entry in oligopolies. 
B) In oligopoly markets there are only a few sellers. 
C) All oligopoly firms eventually earn zero economic profits. 
D) Strategic interactions between firms are rarely evident in oligopolies.

Question 7

What is happening when a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost

Accepted Answer

A) It is violating Canadian competition policy. 
B) It must be losing money. 
C) There is a deadweight loss, but it is exactly offset by the benefit of excess capacity. 
D) It is enjoying a markup over marginal cost. 
A) It is violating Canadian competition policy. 
B) It must be losing money. 
C) There is a deadweight loss, but it is exactly offset by the benefit of excess capacity. 
D) It is enjoying a markup over marginal cost.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Discuss how brand names may enhance the efficiency of markets in a less developed country.

Accepted Answer

Recognizable brand names signal quality

Question 10

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 11

ABC Company knows that it produces and sells a very good mousetrap.XYZ Company knows that it produces and sells a lousy mousetrap.According to the signalling theory of advertising,the quality difference likely produces which result

Accepted Answer

A) Both ABC and XYZ have incentives to spend large amounts of money on advertising their mousetraps. 
B) ABC has an incentive to spend a large amount of money on advertising its mousetrap, but XYZ does not. 
C) XYZ has an incentive to spend a large amount of money on advertising its mousetrap, but ABC does not. 
D) Neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mousetraps. 
A) Both ABC and XYZ have incentives to spend large amounts of money on advertising their mousetraps. 
B) ABC has an incentive to spend a large amount of money on advertising its mousetrap, but XYZ does not. 
C) XYZ has an incentive to spend a large amount of money on advertising its mousetrap, but ABC does not. 
D) Neither ABC nor XYZ has an incentive to spend a large amount of money on advertising their mousetraps.

Question 12

Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already; statistics show that vacancy rates average 15 percent during any given semester."

Accepted Answer

Business-stealing effect: if new entrant

Question 13

Advertising that conveys information about the existence of new products results in which of the following

Accepted Answer

A) It usually confuses consumers about market competition. 
B) It enhances the ability of markets to allocate resources efficiently. 
C) It reveals information that is of little value to consumers. 
D) It increases elasticity of demand. 
A) It usually confuses consumers about market competition. 
B) It enhances the ability of markets to allocate resources efficiently. 
C) It reveals information that is of little value to consumers. 
D) It increases elasticity of demand.

Question 14

When advertising is used to relay information about price,each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 15

Ignoring oligopoly and focusing on the other three types of market structure,in which of those market structures does a profit-maximizing firm charge a price that exceeds marginal cost

Accepted Answer

A) monopoly only 
B) monopoly and monopolistic competition 
C) monopoly and perfect competition 
D) monopolistic competition and perfect competition 
A) monopoly only 
B) monopoly and monopolistic competition 
C) monopoly and perfect competition 
D) monopolistic competition and perfect competition

Question 16

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly

Accepted Answer

A) It advertises. 
B) It produces a quantity of output that falls short of the socially optimal level. 
C) It produces identical products. 
D) Monopolistic competition features many sellers. 
A) It advertises. 
B) It produces a quantity of output that falls short of the socially optimal level. 
C) It produces identical products. 
D) Monopolistic competition features many sellers.

Question 17

The phenomenon of product differentiation contrasts sharply with which of the following

Accepted Answer

A) homogeneous products 
B) monopolistic competition 
C) product integration 
D) non-price competition 
A) homogeneous products 
B) monopolistic competition 
C) product integration 
D) non-price competition

Question 18

Suppose that you are an owner of a company that produce a special weight-loss over-the-counter medicine in a monopolistically competitive industry.The demand and the total cost for your medicine per day are given by the following table.   
a.  Calculate Average Total Cost, Marginal Cost, Total Revenue, Marginal Revenue, and Profit for each bottle of the medicine produced.
b.  How many bottles of this medicine should you produce in order to maximize profit, and what are the market price and the corresponding profit?
c.  Suppose that you pay for an advertising flyer for a $100 flat fee and after that the demand for the medicine increases (see the table below for the new demand information). How do your answers in parts a. and b. change?

Accepted Answer

a.
 @#IMG-DLM& 
b.If you are a profit maximizer, y

Question 19

Which statement describes a characteristic of a monopolistic competitive market

Accepted Answer

A) It has some features of monopoly and some features of competition. 
B) It has one large, dominant firm and many other smaller firms. 
C) It has barriers to entry. 
D) It sells homogeneous products. 
A) It has some features of monopoly and some features of competition. 
B) It has one large, dominant firm and many other smaller firms. 
C) It has barriers to entry. 
D) It sells homogeneous products.

Question 20

Figure 16-3
  
-Refer to Figure 16-3.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money

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)

Exam 16: Monopolistic Competition

Which statement defines business-stealing externality

According to the signalling theory of advertising,how do consumers respond to advertising

The two cereal makers,Post and Kellogg,have each come up with new cereal recipes.Post chooses not to advertise it,but Kellogg chooses to spend $10 million in advertising.Why do the two companies have different advertising strategies

Advertising during the Super Bowl is an example of information about quality contained primarily in the existence and expense of the advertising.

When a leading North American fast-food chain opens a store in Dhaka,Bangladesh,it has a strong incentive to enforce product quality consistent with stores in Canada and the United States.

What is one way in which monopolistic competition differs from oligopoly

What is happening when a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost

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

Discuss how brand names may enhance the efficiency of markets in a less developed country.

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.

ABC Company knows that it produces and sells a very good mousetrap.XYZ Company knows that it produces and sells a lousy mousetrap.According to the signalling theory of advertising,the quality difference likely produces which result

Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already; statistics show that vacancy rates average 15 percent during any given semester."

Advertising that conveys information about the existence of new products results in which of the following

When advertising is used to relay information about price,each firm is able to enhance market power.

Ignoring oligopoly and focusing on the other three types of market structure,in which of those market structures does a profit-maximizing firm charge a price that exceeds marginal cost

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly

The phenomenon of product differentiation contrasts sharply with which of the following

Which statement describes a characteristic of a monopolistic competitive market

Figure 16-3 -Refer to Figure 16-3.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

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

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