Question 1

Advertising that uses celebrity endorsements is most likely intended to:

Accepted Answer

A)  provide a signal of product quality 
B)  be useful only for psychological effects 
C)  increase elasticity of demand for the advertised product 
D)  reduce the ability of markets to allocate resources efficiently 
A)  provide a signal of product quality 
B)  be useful only for psychological effects 
C)  increase elasticity of demand for the advertised product 
D)  reduce the ability of markets to allocate resources efficiently

Question 2

When a profit-maximising firm in a monopolistically competitive market is producing the long-run equilibrium quantity:

Accepted Answer

A)  it will be earning economic profits 
B)  its demand curve will be tangent to its average total cost curve 
C)  its average revenue will equal marginal cost 
D)  its marginal revenue will exceed marginal cost 
A)  it will be earning economic profits 
B)  its demand curve will be tangent to its average total cost curve 
C)  its average revenue will equal marginal cost 
D)  its marginal revenue will exceed marginal cost

Question 3

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation. Firms will thus work harder to maintain high quality.

Accepted Answer

A) True 
 B)False

Question 4

Graph 17-1
  
-Refer to Graph 17-1. Which of the following graphs would most likely represent a profit-maximising 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 5

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Accepted Answer

A)  entry and exit are not restricted 
B)  firms produce at excess capacity 
C)  firms try to differentiate their products 
D)  firms produce homogeneous products 
A)  entry and exit are not restricted 
B)  firms produce at excess capacity 
C)  firms try to differentiate their products 
D)  firms produce homogeneous products

Question 6

A small number of sellers in a market makes rigorous competition:

Accepted Answer

A)  less likely and strategic interactions among them vitally important 
B)  less likely and strategic interactions among them unimportant 
C)  more likely and strategic interactions among them vitally important 
D)  more likely and strategic interactions among them unimportant 
A)  less likely and strategic interactions among them vitally important 
B)  less likely and strategic interactions among them unimportant 
C)  more likely and strategic interactions among them vitally important 
D)  more likely and strategic interactions among them unimportant

Question 7

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

Accepted Answer

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

Question 8

Eunice consumes Coke exclusively. She claims that there is a clear taste difference and that competing brands of cola leave an unsavoury residual taste in her mouth. However, in a blind taste test, Eunice is found to prefer generic store-brand cola to Coke eight out of 10 times. The results of Eunice's taste test would reinforce claims by critics of brand names that:

Accepted Answer

A)  consumers are always willing to pay more for brand names 
B)  brand names cause consumers to perceive differences that do not really exist 
C)  brand names are a form of socially efficient advertising 
D)  brand names cause consumers to be more sensitive to product differences 
A)  consumers are always willing to pay more for brand names 
B)  brand names cause consumers to perceive differences that do not really exist 
C)  brand names are a form of socially efficient advertising 
D)  brand names cause consumers to be more sensitive to product differences

Question 9

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be more able to exercise market power.

Accepted Answer

A) True 
 B)False

Question 10

Graph 17-4
  
-Refer to Graph 17-4. Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:

Accepted Answer

A)  incurring economic gains 
B)  in a short-run equilibrium, but not a long-run equilibrium 
C)  in both a short-run and a long-run equilibrium 
D)  in a long-run equilibrium, but not a short-run equilibrium 
A)  incurring economic gains 
B)  in a short-run equilibrium, but not a long-run equilibrium 
C)  in both a short-run and a long-run equilibrium 
D)  in a long-run equilibrium, but not a short-run equilibrium

Question 11

Just like a competitive firm, a monopolistically competitive market has insignificant barriers to entry.

Accepted Answer

A) True 
 B)False

Question 12

Excess capacity:

Accepted Answer

A)  is a characteristic of rising average total cost curves 
B)  is solely a characteristic of mark-up pricing 
C)  tells economists little about the desirability of a market outcome 
D)  is the primary source of market inefficiency in monopolistically competitive markets 
A)  is a characteristic of rising average total cost curves 
B)  is solely a characteristic of mark-up pricing 
C)  tells economists little about the desirability of a market outcome 
D)  is the primary source of market inefficiency in monopolistically competitive markets

Question 13

Movies that prominently display name-brand consumer products are most likely sending a message about:

Accepted Answer

A)  subliminal satisfaction from consumption 
B)  psychological manipulation 
C)  product quality 
D)  product price 
A)  subliminal satisfaction from consumption 
B)  psychological manipulation 
C)  product quality 
D)  product price

Question 14

Which of the following are important differences between monopolistically competitive markets and perfectly competitive markets? (i) the number of sellers
(ii) product differentiation among the sellers
(iii) slope of the firm's demand function.

Accepted Answer

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

Question 15

The primary claim of defenders of advertising is that:

Accepted Answer

A)  it conveys information about firm profitability 
B)  it enhances the information available to consumers 
C)  it is psychological rather than informational 
D)  all of the above are true 
A)  it conveys information about firm profitability 
B)  it enhances the information available to consumers 
C)  it is psychological rather than informational 
D)  all of the above are true

Question 16

When firms are encouraged to enter monopolistically competitive markets:

Accepted Answer

A)  the diversity of products in the market must be small 
B)  they are guaranteed economic profits upon entry 
C)  some firms in the market must be making economic profits 
D)  no firms can experience economic losses 
A)  the diversity of products in the market must be small 
B)  they are guaranteed economic profits upon entry 
C)  some firms in the market must be making economic profits 
D)  no firms can experience economic losses

Question 17

The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which marginal revenue is equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that a profit-maximising firm in a monopolistically competitive market is at long-run equilibrium, then:

Accepted Answer

A)  the demand curve will be unitary elastic 
B)  average revenue will exceed the price 
C)  price will exceed marginal cost 
D)  marginal revenue exceeds marginal cost 
A)  the demand curve will be unitary elastic 
B)  average revenue will exceed the price 
C)  price will exceed marginal cost 
D)  marginal revenue exceeds marginal cost

Question 19

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Accepted Answer

The similarity is that in both markets,

Question 20

Evaluate the following statement: 'Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets'.

Accepted Answer

Some people argue that celebri

Exam 18: Monopolistic Competition

Advertising that uses celebrity endorsements is most likely intended to:

When a profit-maximising firm in a monopolistically competitive market is producing the long-run equilibrium quantity:

Brand names can improve product quality because firms will want to avoid the financial loss that would follow a fall in reputation. Firms will thus work harder to maintain high quality.

Graph 17-1 -Refer to Graph 17-1. Which of the following graphs would most likely represent a profit-maximising firm in a monopolistically competitive market?

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

A small number of sellers in a market makes rigorous competition:

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

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be more able to exercise market power.

Graph 17-4 -Refer to Graph 17-4. Panel b in the set of figures shown is consistent with a firm in a monopolistically competitive market that is:

Just like a competitive firm, a monopolistically competitive market has insignificant barriers to entry.

Excess capacity:

Movies that prominently display name-brand consumer products are most likely sending a message about:

Which of the following are important differences between monopolistically competitive markets and perfectly competitive markets? (i) the number of sellers (ii) product differentiation among the sellers (iii) slope of the firm's demand function.

The primary claim of defenders of advertising is that:

When firms are encouraged to enter monopolistically competitive markets:

The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which marginal revenue is equal to marginal cost.

Suppose that a profit-maximising firm in a monopolistically competitive market is at long-run equilibrium, then:

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Evaluate the following statement: 'Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets'.

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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