Question 1

Perfect competition and monopolistic competition share the attributes of having many sellers and free entry.

Accepted Answer

A) True 
 B)False

Question 2

In differentiated product markets that are characterised by advertising, evidence suggests that which of the following statements are true? (i) markets are less efficient
(ii) consumers make better choices
(iii) in general, firms are less profitable

Accepted Answer

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

Question 3

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with:

Accepted Answer

A)  information about product price 
B)  a signal of product quality 
C)  a good example of wasted resources 
D)  a glimpse of ostentatious capitalism 
A)  information about product price 
B)  a signal of product quality 
C)  a good example of wasted resources 
D)  a glimpse of ostentatious capitalism

Question 4

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to:

Accepted Answer

A)  enhance the choice set of consumers among local restaurants 
B)  reduce barriers to entry in imperfect markets 
C)  reduce the competitive nature of local fast-food markets 
D)  enhance the social wellbeing of society 
A)  enhance the choice set of consumers among local restaurants 
B)  reduce barriers to entry in imperfect markets 
C)  reduce the competitive nature of local fast-food markets 
D)  enhance the social wellbeing of society

Question 5

Graph 17-4
  
-Refer to Graph 17-4. Which of the panels shown reflects a long-run equilibrium for a 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 6

In the market for hotel rooms in large metropolitan markets, the cost of a single night's stay can be several times higher than that of a similar room in a suburban market. If the market for hotel rooms is characterised by monopolistic competition, this difference in price can be partially explained by:

Accepted Answer

A)  a higher cost for accommodations to compensate for the lower cost of airfare into metropolitan markets 
B)  the mark-up of price over a higher marginal cost in large metropolitan markets 
C)  the cost of living in a large city 
D)  transportation access 
A)  a higher cost for accommodations to compensate for the lower cost of airfare into metropolitan markets 
B)  the mark-up of price over a higher marginal cost in large metropolitan markets 
C)  the cost of living in a large city 
D)  transportation access

Question 7

A profit-maximising firm in a monopolistically competitive market always operates on the downward-sloping portion of its marginal cost curve.

Accepted Answer

A) True 
 B)False

Question 8

For a profit-maximising firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Accepted Answer

A) True 
 B)False

Question 9

Graph 17-3
   Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms.
-Refer to Graph 17-3. Panel d in the set of figures shown depicts the effect on incumbent firms of:

Accepted Answer

A)  existing firms exiting the market 
B)  long-run economic losses 
C)  a decrease in the diversity of products offered in the market 
D)  new entrants in the market 
A)  existing firms exiting the market 
B)  long-run economic losses 
C)  a decrease in the diversity of products offered in the market 
D)  new entrants in the market

Question 10

If firms in a monopolistically competitive industry are making losses:

Accepted Answer

A)  they will likely be subject to regulation 
B)  they ought to form a cartel 
C)  new firms will enter the market 
D)  some firms must exit the market 
A)  they will likely be subject to regulation 
B)  they ought to form a cartel 
C)  new firms will enter the market 
D)  some firms must exit the market

Question 11

When free entry is one of the attributes of a market structure, economic profits are:

Accepted Answer

A)  eventually driven to zero 
B)  negative for all firms 
C)  never above or below zero 
D)  always positive 
A)  eventually driven to zero 
B)  negative for all firms 
C)  never above or below zero 
D)  always positive

Question 12

The property of free entry means that in monopolistically competitive markets:

Accepted Answer

A)  all remaining firms earn zero economic profits in the long run 
B)  some firms will be able to earn economic profits in the long run 
C)  some firms will be forced to incur economic losses in the long run 
D)  the market structure will eventually be characterised by perfect competition in the long run 
A)  all remaining firms earn zero economic profits in the long run 
B)  some firms will be able to earn economic profits in the long run 
C)  some firms will be forced to incur economic losses in the long run 
D)  the market structure will eventually be characterised by perfect competition in the long run

Question 13

A profit-maximising firm in a monopolistically competitive market is characterised by which of the following?

Accepted Answer

A)  revenue is always maximised along with profit 
B)  average revenue exceeds marginal revenue 
C)  marginal revenue exceeds average revenue 
D)  average revenue is equal to marginal revenue 
A)  revenue is always maximised along with profit 
B)  average revenue exceeds marginal revenue 
C)  marginal revenue exceeds average revenue 
D)  average revenue is equal to marginal revenue

Question 14

Graph 17-1
  
-Refer to Graph 17-1. The firm depicted in panel b faces a horizontal demand curve. If panel b depicts a profit-maximising firm:

Accepted Answer

A)  it would not be operating in a monopolistically competitive market 
B)  it would not have excess capacity in its production as long as it is earning zero economic profit 
C)  it is not able to choose the price at which it sells its product 
D)  all of the above are true 
A)  it would not be operating in a monopolistically competitive market 
B)  it would not have excess capacity in its production as long as it is earning zero economic profit 
C)  it is not able to choose the price at which it sells its product 
D)  all of the above are true

Exam 18: Monopolistic Competition

Perfect competition and monopolistic competition share the attributes of having many sellers and free entry.

In differentiated product markets that are characterised by advertising, evidence suggests that which of the following statements are true? (i) markets are less efficient (ii) consumers make better choices (iii) in general, firms are less profitable

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with:

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to:

Graph 17-4 -Refer to Graph 17-4. Which of the panels shown reflects a long-run equilibrium for a firm in a monopolistically competitive market?

A profit-maximising firm in a monopolistically competitive market always operates on the downward-sloping portion of its marginal cost curve.

For a profit-maximising firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Graph 17-3 Lines in these figures reflect the potential effect of entry and exit in a monopolistically competitive market on the demand and/or marginal cost curves of incumbent firms. -Refer to Graph 17-3. Panel d in the set of figures shown depicts the effect on incumbent firms of:

If firms in a monopolistically competitive industry are making losses:

When free entry is one of the attributes of a market structure, economic profits are:

The property of free entry means that in monopolistically competitive markets:

A profit-maximising firm in a monopolistically competitive market is characterised by which of the following?

Graph 17-1 -Refer to Graph 17-1. The firm depicted in panel b faces a horizontal demand curve. If panel b depicts a profit-maximising firm:

Ten Lessons From 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

Business Strategy

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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 Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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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