Question 1

Which of the following is true of the price charged by a monopolistically competitive firm at the profit-maximizing level of output?

Accepted Answer

A) P > MC B) P = MC C) P = MR D) P < AVC A) P > MC B) P = MC C) P = MR D) P < AVC

Question 2

The first unit of an information product is produced at a high fixed cost. Producing additional units entails relatively low

Accepted Answer

A)  total costs. 
B)  marginal and average variable cost. 
C)  external cost. 
D)  social cost. 
A)  total costs. 
B)  marginal and average variable cost. 
C)  external cost. 
D)  social cost.

Question 3

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve would represent the average variable cost?

Accepted Answer

A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above 
A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above

Question 4

Monopolistic competition and perfect competition are similar in that each market structure is characterized by

Accepted Answer

A)  advertising. 
B)  production at minimum average cost in the long run. 
C)  a horizontal demand curve. 
D)  the absence of long-run economic profits. 
A)  advertising. 
B)  production at minimum average cost in the long run. 
C)  a horizontal demand curve. 
D)  the absence of long-run economic profits.

Question 5

In a monopolistically competitive market there are

Accepted Answer

A)  many firms producing an identical product. 
B)  many firms producing similar but not identical products. 
C)  many firms producing totally different products. 
D)  few firms producing identical products. 
A)  many firms producing an identical product. 
B)  many firms producing similar but not identical products. 
C)  many firms producing totally different products. 
D)  few firms producing identical products.

Question 6

An example of direct marketing is

Accepted Answer

A)  the use of coupons in newspapers. 
B)  allowing the use of the product for 7 days before the consumer is billed for the product. 
C)  charging customers who pay with cash a different price than those using credit cards. 
D)  the use of personalized advertising by using mailing lists. 
A)  the use of coupons in newspapers. 
B)  allowing the use of the product for 7 days before the consumer is billed for the product. 
C)  charging customers who pay with cash a different price than those using credit cards. 
D)  the use of personalized advertising by using mailing lists.

Question 7

In the long run, the monopolistically competitive firm's demand curve will

Accepted Answer

A)  intersect the ATC at its minimum point. 
B)  intersect the ATC curve somewhere past the minimum point. 
C)  become tangent to the ATC curve at its minimum point. 
D)  become tangent to the ATC curve somewhere to the left of its minimum point. 
A)  intersect the ATC at its minimum point. 
B)  intersect the ATC curve somewhere past the minimum point. 
C)  become tangent to the ATC curve at its minimum point. 
D)  become tangent to the ATC curve somewhere to the left of its minimum point.

Question 8

If a firm that produces an information product uses marginal cost pricing, then the firm

Accepted Answer

A)  will earn negative profits. 
B)  will earn profits equal to zero. 
C)  will earn positive profits but could earn a higher profit by using a different method. 
D)  will maximize profits. 
A)  will earn negative profits. 
B)  will earn profits equal to zero. 
C)  will earn positive profits but could earn a higher profit by using a different method. 
D)  will maximize profits.

Question 9

An information product is a product for which

Accepted Answer

A)  the first item is produced inexpensively but additional units are more costly to produce. 
B)  the first unit is very costly to make but additional units are less costly to produce. 
C)  the marginal cost first falls and then rises but the average total cost rises throughout its range. 
D)  the average fixed cost first falls and then rises, but the average total cost falls throughout its range. 
A)  the first item is produced inexpensively but additional units are more costly to produce. 
B)  the first unit is very costly to make but additional units are less costly to produce. 
C)  the marginal cost first falls and then rises but the average total cost rises throughout its range. 
D)  the average fixed cost first falls and then rises, but the average total cost falls throughout its range.

Question 10

If firms in a monopolistically competitive industry experience short-run losses,

Accepted Answer

A)  some firms would like to exit the industry but find they cannot. 
B)  firms increase prices further, until they make at least a normal return. 
C)  firms increase advertising spending to increase demand, until they make at least a normal return. 
D)  some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit. 
A)  some firms would like to exit the industry but find they cannot. 
B)  firms increase prices further, until they make at least a normal return. 
C)  firms increase advertising spending to increase demand, until they make at least a normal return. 
D)  some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit.

Question 11

To differentiate its product, a monopolistic competitive firm will engage in all of the following advertising practices EXCEPT

Accepted Answer

A)  direct marketing. 
B)  mass marketing. 
C)  interactive marketing. 
D)  indirect marketing. 
A)  direct marketing. 
B)  mass marketing. 
C)  interactive marketing. 
D)  indirect marketing.

Question 12

How is monopolistic competition like perfect competition? How is it like monopoly?

Accepted Answer

Monopolistic competition is like perfect

Question 13

Jim has just researched and purchased a computer through the Internet as a result of responding directly to a pop-up ad. The pop-up ad is an example of

Accepted Answer

A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing. 
A)  mass marketing. 
B)  direct marketing. 
C)  indirect marketing. 
D)  interactive marketing.

Question 14

Monopolistic competitors advertise because

Accepted Answer

A)  they have downward sloping demand curves. 
B)  the demand curves they face are very elastic. 
C)  they produce goods that can be differentiated from the goods of other firms in the industry. 
D)  they can earn long-run profits if they advertise. 
A)  they have downward sloping demand curves. 
B)  the demand curves they face are very elastic. 
C)  they produce goods that can be differentiated from the goods of other firms in the industry. 
D)  they can earn long-run profits if they advertise.

Question 15

Mass marketing is

Accepted Answer

A)  advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders. 
B)  advertising that targets a specific audience and allows the consumer to follow up directly by placing direct product orders usually through television or radio. 
C)  advertising targeted at specific consumers. 
D)  advertising intended to reach as many consumers as possible. 
A)  advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders. 
B)  advertising that targets a specific audience and allows the consumer to follow up directly by placing direct product orders usually through television or radio. 
C)  advertising targeted at specific consumers. 
D)  advertising intended to reach as many consumers as possible.

Question 16

A good that has qualities that are easy for a consumer to assess in advance of a purchase is called

Accepted Answer

A)  a credence good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good. 
A)  a credence good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good.

Question 17

Persuasive advertising is used to

Accepted Answer

A)  induce a consumer to try a product and discover a previously unknown taste for it. 
B)  promote only used goods. 
C)  sell to an established clientele. 
D)  cut costs. 
A)  induce a consumer to try a product and discover a previously unknown taste for it. 
B)  promote only used goods. 
C)  sell to an established clientele. 
D)  cut costs.

Question 18

Graphically, how does a monopolistically competitive firm determine its profit-maximizing price?

Accepted Answer

A)  It accepts the price set by the industry-wide forces of supply and demand. 
B)  Graphically, it finds the place where MR = MC and charges the price directly to the left of that point. 
C)  The firm's pricing structure is set by government regulators. 
D)  The firm determines its profit-maximizing output and then charges the price associated with the point on its demand curve directly above that quantity. 
A)  It accepts the price set by the industry-wide forces of supply and demand. 
B)  Graphically, it finds the place where MR = MC and charges the price directly to the left of that point. 
C)  The firm's pricing structure is set by government regulators. 
D)  The firm determines its profit-maximizing output and then charges the price associated with the point on its demand curve directly above that quantity.

Question 19

In the short run, a firm operating as a monopolistic competitor will produce to the point at which

Accepted Answer

A)  MR = ATC. 
B)  MC = ATC. 
C)  P = MC. 
D)  MR = MC. 
A)  MR = ATC. 
B)  MC = ATC. 
C)  P = MC. 
D)  MR = MC.

Question 20

Informational advertising is mostly used for

Accepted Answer

A)  a logo good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good. 
A)  a logo good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good.

Exam 25: Monopolistic Competition

Which of the following is true of the price charged by a monopolistically competitive firm at the profit-maximizing level of output?

The first unit of an information product is produced at a high fixed cost. Producing additional units entails relatively low

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve would represent the average variable cost?

Monopolistic competition and perfect competition are similar in that each market structure is characterized by

In a monopolistically competitive market there are

An example of direct marketing is

In the long run, the monopolistically competitive firm's demand curve will

If a firm that produces an information product uses marginal cost pricing, then the firm

An information product is a product for which

If firms in a monopolistically competitive industry experience short-run losses,

To differentiate its product, a monopolistic competitive firm will engage in all of the following advertising practices EXCEPT

How is monopolistic competition like perfect competition? How is it like monopoly?

Jim has just researched and purchased a computer through the Internet as a result of responding directly to a pop-up ad. The pop-up ad is an example of

Monopolistic competitors advertise because

Mass marketing is

A good that has qualities that are easy for a consumer to assess in advance of a purchase is called

Persuasive advertising is used to

Graphically, how does a monopolistically competitive firm determine its profit-maximizing price?

In the short run, a firm operating as a monopolistic competitor will produce to the point at which

Informational advertising is mostly used for

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