Question 1

In the long run, the profit for a monopolistically competitive firm moves to the competitive level due to:

Accepted Answer

A)  moving demand for its product 
B)  rising average total cost 
C)  rising average variable cost 
D)  the cost of advertising 
A)  moving demand for its product 
B)  rising average total cost 
C)  rising average variable cost 
D)  the cost of advertising

Question 2

A profit-maximising firm in a monopolistically competitive market always prices its product at marginal cost.

Accepted Answer

A) True 
 B)False

Question 3

Consider the following graph
   Identify:
(a) Which panel(s) could represent a firm in monopolistic competition in the long run;
(b) Which panel(s) could not represent a firm in monopolistic competition in the short run;
(c) Which panel(s) could represent a firm in monopolistic competition making a loss;
(d) Which panel(s) could represent a firm in monopolistic competition making a positive economic profit

Accepted Answer

Panel a, p

Question 4

When a firm operates at excess capacity, it must be in a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 5

Because a monopolistically competitive firm has some market power, in the long run the price of its good exceeds its:

Accepted Answer

A)  average revenue 
B)  total cost 
C)  average cost 
D)  marginal cost 
A)  average revenue 
B)  total cost 
C)  average cost 
D)  marginal cost

Question 6

In markets where restrictions on advertising have been used to curtail competition, the US courts have generally:

Accepted Answer

A)  referred the matters of advertising restrictions to executive regulators 
B)  overturned laws that prohibit advertising 
C)  enforced industry-wide agreements to restrict advertising 
D)  been silent on the effect of explicit advertising restrictions 
A)  referred the matters of advertising restrictions to executive regulators 
B)  overturned laws that prohibit advertising 
C)  enforced industry-wide agreements to restrict advertising 
D)  been silent on the effect of explicit advertising restrictions

Question 7

As some incumbent firms exit a monopolistically competitive market, profits of existing firms:

Accepted Answer

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

Question 8

A profit-maximising firm in a monopolistically competitive market is eager for another customer because:

Accepted Answer

A)  it has excess capacity 
B)  a mark-up over marginal cost is difficult to maintain 
C)  price exceeds marginal cost 
D)  it earns zero economic profits in the long run 
A)  it has excess capacity 
B)  a mark-up over marginal cost is difficult to maintain 
C)  price exceeds marginal cost 
D)  it earns zero economic profits in the long run

Question 9

Suppose a new competitor enters a market and the incumbent firms lose customers and profits. This means that a:

Accepted Answer

A)  business-stealing externality has occurred 
B)  product-variety externality has occurred 
C)  predatory pricing externality has occurred 
D)  consumption externality has occurred 
A)  business-stealing externality has occurred 
B)  product-variety externality has occurred 
C)  predatory pricing externality has occurred 
D)  consumption externality has occurred

Question 10

Trademarks are a form of branding products in communist countries. This was deemed necessary so that there was:

Accepted Answer

A)  a way to ensure accountability for quality 
B)  a clear signal of market quality, in the absence of markets 
C)  a way for customers to select the goods they preferred 
D)  all of the above are true 
A)  a way to ensure accountability for quality 
B)  a clear signal of market quality, in the absence of markets 
C)  a way for customers to select the goods they preferred 
D)  all of the above are true

Question 11

Are the resources devoted to advertising wasted? Explain how advertising may not be of social value.

Accepted Answer

Suppose that advertising simply manipula

Question 12

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Accepted Answer

A)  inflame carnal desire 
B)  encourage sunbathing in general 
C)  provide helpful information about a tourist destination 
D)  manipulate people's tastes through psychological messages 
A)  inflame carnal desire 
B)  encourage sunbathing in general 
C)  provide helpful information about a tourist destination 
D)  manipulate people's tastes through psychological messages

Question 13

In the long run, the output of a monopolistically competitive firm will be:

Accepted Answer

A)  less than the efficient scale at zero economic profit 
B)  greater than the efficient scale at a positive economic profit 
C)  equal to the efficient scale at a zero economic profit 
D)  consistent with diseconomies of scale 
A)  less than the efficient scale at zero economic profit 
B)  greater than the efficient scale at a positive economic profit 
C)  equal to the efficient scale at a zero economic profit 
D)  consistent with diseconomies of scale

Question 14

The business-stealing externality associated with monopolistic competition arises because in monopolistically competitive markets:

Accepted Answer

A)  profit-maximising firms charge a price higher than marginal cost 
B)  profit-maximising firms produce differentiated products 
C)  there are few barriers to entry 
D)  profit-maximising firms produce at a less-than-efficient scale 
A)  profit-maximising firms charge a price higher than marginal cost 
B)  profit-maximising firms produce differentiated products 
C)  there are few barriers to entry 
D)  profit-maximising firms produce at a less-than-efficient scale

Question 15

Important similarities between firms in a monopolistically competitive market and a monopoly are which of the following?: (i) they both face downward-sloping demand curves
(ii) they are both regulated by the government
(iii) firms in both markets can make economic profits in the long run

Accepted Answer

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

Question 16

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

Accepted Answer

A)  a downward shift in their marginal cost curve 
B)  an upward shift in their marginal cost curve 
C)  an increase in demand 
D)  a decrease in demand 
A)  a downward shift in their marginal cost curve 
B)  an upward shift in their marginal cost curve 
C)  an increase in demand 
D)  a decrease in demand

Question 17

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Accepted Answer

A)  lower their advertising budget 
B)  charge a lower mark-up over marginal cost 
C)  increase their advertising budget 
D)  charge a larger mark-up over marginal cost 
A)  lower their advertising budget 
B)  charge a lower mark-up over marginal cost 
C)  increase their advertising budget 
D)  charge a larger mark-up over marginal cost

Question 18

You are trying to decide whether to buy a new camera for your trip. You have a choice of a new Canon or a camera made by a generic manufacturer. You buy the Canon but unfortunately, the camera's shutter quickly breaks and you decide to buy a different brand camera to replace it. This example would reinforce the claim that:

Accepted Answer

A)  brand names are a signal of quality 
B)  firms have a financial stake in maintaining the reputation of their brand names 
C)  brand names always maintain consistent quality 
D)  none of the above are true 
A)  brand names are a signal of quality 
B)  firms have a financial stake in maintaining the reputation of their brand names 
C)  brand names always maintain consistent quality 
D)  none of the above are true

Question 19

As market restrictions begin to be relaxed in China, computer hardware manufacturers have started advertising their products on billboards throughout China. The Premier of China expressed dismay that individual manufacturers had chosen to use advertising, in open disregard of an industry-wide 'gentleman's agreement' not to openly advertise 'technology products'. In the past the Computer Hardware Manufacturers Association informally monitored the agreement.
-According to the information provided, advertising of computer hardware on billboards will most likely:

Accepted Answer

A)  increase the profitability of existing firms and increase barriers to entry 
B)  increase the incidence of computer-related addictions in middle-aged professionals 
C)  reduce market efficiency 
D)  reduce the collective profitability of firms that manufacture computer hardware 
A)  increase the profitability of existing firms and increase barriers to entry 
B)  increase the incidence of computer-related addictions in middle-aged professionals 
C)  reduce market efficiency 
D)  reduce the collective profitability of firms that manufacture computer hardware

Question 20

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Accepted Answer

A) True 
 B)False

Exam 18: Monopolistic Competition

In the long run, the profit for a monopolistically competitive firm moves to the competitive level due to:

A profit-maximising firm in a monopolistically competitive market always prices its product at marginal cost.

When a firm operates at excess capacity, it must be in a monopolistically competitive market.

Because a monopolistically competitive firm has some market power, in the long run the price of its good exceeds its:

In markets where restrictions on advertising have been used to curtail competition, the US courts have generally:

As some incumbent firms exit a monopolistically competitive market, profits of existing firms:

A profit-maximising firm in a monopolistically competitive market is eager for another customer because:

Suppose a new competitor enters a market and the incumbent firms lose customers and profits. This means that a:

Trademarks are a form of branding products in communist countries. This was deemed necessary so that there was:

Are the resources devoted to advertising wasted? Explain how advertising may not be of social value.

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

In the long run, the output of a monopolistically competitive firm will be:

The business-stealing externality associated with monopolistic competition arises because in monopolistically competitive markets:

Important similarities between firms in a monopolistically competitive market and a monopoly are which of the following?: (i) they both face downward-sloping demand curves (ii) they are both regulated by the government (iii) firms in both markets can make economic profits in the long run

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

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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