Question 1

With what is the product-variety externality associated

Accepted Answer

A) the producer surplus that accrues to incumbent firms in a monopolistically competitive industry 
B) loss of consumer surplus from exposure to additional advertising 
C) the consumer surplus that is generated from the introduction of a new product 
D) the opportunity cost of firms exiting a monopolistically competitive industry 
A) the producer surplus that accrues to incumbent firms in a monopolistically competitive industry 
B) loss of consumer surplus from exposure to additional advertising 
C) the consumer surplus that is generated from the introduction of a new product 
D) the opportunity cost of firms exiting a monopolistically competitive industry

Question 2

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Accepted Answer

A) True 
 B)False

Question 3

When a firm exits a monopolistically competitive market,what will happen to the individual demand curves faced by all existing firms in that market

Accepted Answer

A) They will remain unchanged but the quantity of demand will increase. 
B) They will shift to the right. 
C) They will remain unchanged but the quantity of demand will decrease. 
D) They will shift to the left. 
A) They will remain unchanged but the quantity of demand will increase. 
B) They will shift to the right. 
C) They will remain unchanged but the quantity of demand will decrease. 
D) They will shift to the left.

Question 4

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

Accepted Answer

A) True 
 B)False

Question 5

Product differentiation generally leads to some measure of market power.

Accepted Answer

A) True 
 B)False

Question 6

How is the inefficiency related to the monopolistically competitive industry eliminated?

Accepted Answer

Even though in the monopolistically comp

Question 7

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,what is the result

Accepted Answer

A) Its average revenue will equal its marginal cost. 
B) Its marginal revenue will be tangent to its marginal cost. 
C) It will be earning positive economic profits. 
D) Its demand curve will be tangent to its average-total-cost curve. 
A) Its average revenue will equal its marginal cost. 
B) Its marginal revenue will be tangent to its marginal cost. 
C) It will be earning positive economic profits. 
D) Its demand curve will be tangent to its average-total-cost curve.

Question 8

Suppose the federal finance minister wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,what would we expect would happen to monopolistically competitive firms

Accepted Answer

A) They would see their costs increase. 
B) They would have to lower their production. 
C) They would require subsidies to stay in business. 
D) They would have to exit the market. 
A) They would see their costs increase. 
B) They would have to lower their production. 
C) They would require subsidies to stay in business. 
D) They would have to exit the market.

Question 9

What happens when advertising is used to strengthen brand loyalty

Accepted Answer

A) Demand for the product becomes less elastic. 
B) Demand for related products is typically unaffected. 
C) Consumers become more sensitive to price differences among similar goods. 
D) Firms lower prices to increase revenue. 
A) Demand for the product becomes less elastic. 
B) Demand for related products is typically unaffected. 
C) Consumers become more sensitive to price differences among similar goods. 
D) Firms lower prices to increase revenue.

Question 10

Monopolistic competition is the only market structure that features many sellers.

Accepted Answer

A) True 
 B)False

Question 11

What causes the deadweight loss that is associated with a monopolistically competitive market

Accepted Answer

A) price exceeding average total cost 
B) price exceeding marginal cost 
C) price being equal to marginal cost 
D) price being equal to average total cost 
A) price exceeding average total cost 
B) price exceeding marginal cost 
C) price being equal to marginal cost 
D) price being equal to average total cost

Question 12

Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for which type of branded products

Accepted Answer

A) those that have elastic demand curves 
B) those that are very different from generic products 
C) those that are indistinguishable from generic products 
D) those that consumer-advocate groups have found to be inferior 
A) those that have elastic demand curves 
B) those that are very different from generic products 
C) those that are indistinguishable from generic products 
D) those that consumer-advocate groups have found to be inferior

Question 13

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by what other type of firm

Accepted Answer

A) a perfectly competitive firm 
B) a duopolist 
C) a monopolist 
D) an oligopolist 
A) a perfectly competitive firm 
B) a duopolist 
C) a monopolist 
D) an oligopolist

Question 14

Table 16-1
A monopolistically competitive firm faces the following demand curve for its product:
  
-Refer to Table 16-1.The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.Which outcome will result

Accepted Answer

A) Firms will exit this market. 
B) Firms will enter this market. 
C) This market is in long-run equilibrium. 
D) This firm is operating at efficient scale. 
A) Firms will exit this market. 
B) Firms will enter this market. 
C) This market is in long-run equilibrium. 
D) This firm is operating at efficient scale.

Question 15

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market.

Accepted Answer

A) True 
 B)False

Question 16

Figure 16-2
  
-Refer to Figure 16-2.Which of the graphs would most likely represent a profit-maximizing firm in a monopolistically competitive market

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 17

Which goods are NOT sold in a monopolistically competitive market

Accepted Answer

A) shoes 
B) books 
C) cookies 
D) wheat 
A) shoes 
B) books 
C) cookies 
D) wheat

Question 18

Scenario 16-2
Consider the problem facing two firms in the fast-food restaurant market, Firm A and Firm B.Each company has just come up with an idea for a new fast-food menu item, which it would sell for $6.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 16-2.If Firm B decides to advertise its product,what can it expect to happen

Accepted Answer

A) It will incur a loss of $36 million per year. 
B) It will have a profit of $96 million per year. 
C) It will have a profit of $84 million per year. 
D) It will exit the industry. 
A) It will incur a loss of $36 million per year. 
B) It will have a profit of $96 million per year. 
C) It will have a profit of $84 million per year. 
D) It will exit the industry.

Question 19

Why is a profit-maximizing firm in a monopolistically competitive market eager for another customer

Accepted Answer

A) to maintain the equality between price and marginal cost 
B) to markup where price exceeds marginal cost?c to continue to operate at the efficient scale?d.to earn zero economic profits in the long run 
A) to maintain the equality between price and marginal cost 
B) to markup where price exceeds marginal cost?c to continue to operate at the efficient scale?d.to earn zero economic profits in the long run

Question 20

What did Edward Chamberlin argue about brand names

Accepted Answer

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

Exam 16: Monopolistic Competition

With what is the product-variety externality associated

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

When a firm exits a monopolistically competitive market,what will happen to the individual demand curves faced by all existing firms in that market

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

Product differentiation generally leads to some measure of market power.

How is the inefficiency related to the monopolistically competitive industry eliminated?

When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,what is the result

Suppose the federal finance minister wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale.If this law were to pass and be enforced,what would we expect would happen to monopolistically competitive firms

What happens when advertising is used to strengthen brand loyalty

Monopolistic competition is the only market structure that features many sellers.

What causes the deadweight loss that is associated with a monopolistically competitive market

Critics of markets that are characterized by firms that sell brand-name products argue that brand names encourage consumers to pay more for which type of branded products

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by what other type of firm

Table 16-1 A monopolistically competitive firm faces the following demand curve for its product: -Refer to Table 16-1.The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.Which outcome will result

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market.

Figure 16-2 -Refer to Figure 16-2.Which of the graphs would most likely represent a profit-maximizing firm in a monopolistically competitive market

Which goods are NOT sold in a monopolistically competitive market

Why is a profit-maximizing firm in a monopolistically competitive market eager for another customer

What did Edward Chamberlin argue about brand names

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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