Question 1

Policymakers do not accept the view that advertising enhances the efficiency of markets.

Accepted Answer

A) True 
 B)False

Question 2

Given that firms in monopolistically competitive markets share the attribute of many sellers with firms in perfect competition, it follows that firms in both markets face horizontal demand curves.

Accepted Answer

A) True 
 B)False

Question 3

The main reason that a monopolistically competitive market is considered inefficient is because:

Accepted Answer

A)  marginal cost exceeds average revenue 
B)  excess capacity is a short-run problem 
C)  prices exceed average total cost 
D)  price exceeds marginal cost 
A)  marginal cost exceeds average revenue 
B)  excess capacity is a short-run problem 
C)  prices exceed average total cost 
D)  price exceeds marginal cost

Question 4

Monopolistic competition is characterised by which of the following attributes? (i) many sellers
(ii) product differentiation
(iii) barriers to entry

Accepted Answer

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

Question 5

Brand names are associated with which of the following arguments? (i) brand names provide information about quality, when quality cannot be easily judged
(ii) firms that promote brand names have strong incentives to monitor product quality
(iii) firms that promote brand names face an elastic demand for their product

Accepted Answer

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

Question 6

When advertising is cheap:

Accepted Answer

A)  it is more likely to impede market power 
B)  consumers are more able to focus on informational content 
C)  consumers learn to ignore it over time 
D)  all of the above are likely to be true 
A)  it is more likely to impede market power 
B)  consumers are more able to focus on informational content 
C)  consumers learn to ignore it over time 
D)  all of the above are likely to be true

Question 7

Brand names have a useful function if the preference for brands has a rational basis.

Accepted Answer

A) True 
 B)False

Question 8

As in a competitive market, monopolistically competitive firms:

Accepted Answer

A)  earn zero economic profit in the long run 
B)  sell their product at a price that equals marginal cost 
C)  are generally driven by altruistic motives 
D)  do both A and B 
A)  earn zero economic profit in the long run 
B)  sell their product at a price that equals marginal cost 
C)  are generally driven by altruistic motives 
D)  do both A and B

Question 9

Defenders of advertising would argue that advertising conveys information about which of the following? (i) the prices of goods offered for sale
(ii) the existence of new products
(iii) the location of retail outlets

Accepted Answer

A)  (i) only 
B)  (ii) and (iii) only 
C)  none of the above 
D)  (i), (ii) and (iii) 
A)  (i) only 
B)  (ii) and (iii) only 
C)  none of the above 
D)  (i), (ii) and (iii)

Question 10

If in the short run, a firm in a monopolistically competitive market is making a loss, then in the long run it will:

Accepted Answer

A)  either have exited the market or make a zero economic profit 
B)  definitely exit the market 
C)  make a positive economic profit 
D)  continue making a loss but stay in the market 
A)  either have exited the market or make a zero economic profit 
B)  definitely exit the market 
C)  make a positive economic profit 
D)  continue making a loss but stay in the market

Question 11

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social wellbeing of society.

Accepted Answer

Advertising provides information to cons

Question 12

The efficient scale occurs when the firm's:

Accepted Answer

A)  average total cost curve must be falling 
B)  average total cost curve must be rising 
C)  average revenue must be equal to the minimum of average total cost 
D)  average revenue must exceed the minimum of average total cost 
A)  average total cost curve must be falling 
B)  average total cost curve must be rising 
C)  average revenue must be equal to the minimum of average total cost 
D)  average revenue must exceed the minimum of average total cost

Question 13

You intend travelling to Shanghai, China, to market truck-parts to local manufacturers. Your travel agent provides a list of 120 local hotels and a Sheraton. In this case, the Sheraton brand-name is likely to be used as a signal of:

Accepted Answer

A)  quality when quality cannot be easily judged 
B)  perceived differences that are not likely to exist among your various options 
C)  inefficiency in markets characterised by recognisable brand names 
D)  the quality of general lodging accommodations in Shanghai 
A)  quality when quality cannot be easily judged 
B)  perceived differences that are not likely to exist among your various options 
C)  inefficiency in markets characterised by recognisable brand names 
D)  the quality of general lodging accommodations in Shanghai

Question 14

In monopolistically competitive markets, economic profits will eventually lead to:

Accepted Answer

A)  rightward shifts of the demand curve of incumbent firms 
B)  leftward shifts of the demand curve of incumbent firms 
C)  barriers to entry 
D)  economic losses 
A)  rightward shifts of the demand curve of incumbent firms 
B)  leftward shifts of the demand curve of incumbent firms 
C)  barriers to entry 
D)  economic losses

Question 15

The deadweight loss that is associated with a monopolistically competitive market is a result of:

Accepted Answer

A)  poor working conditions for workers 
B)  pricing equal to marginal cost 
C)  pricing below marginal cost in order to increase market share 
D)  pricing above marginal cost 
A)  poor working conditions for workers 
B)  pricing equal to marginal cost 
C)  pricing below marginal cost in order to increase market share 
D)  pricing above marginal cost

Question 16

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

Accepted Answer

A)  strategic interactions among sellers 
B)  there being many sellers 
C)  sellers being price makers rather than price takers 
D)  the homogeneous products that are produced 
A)  strategic interactions among sellers 
B)  there being many sellers 
C)  sellers being price makers rather than price takers 
D)  the homogeneous products that are produced

Question 17

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, the beer market is likely to be more efficient if the:

Accepted Answer

A)  product-variety externality exceeds the business-stealing externality 
B)  business-stealing externality exceeds the product-variety externality 
C)  competitive externality exceeds the advertising externality 
D)  advertising externality exceeds the competitive externality 
A)  product-variety externality exceeds the business-stealing externality 
B)  business-stealing externality exceeds the product-variety externality 
C)  competitive externality exceeds the advertising externality 
D)  advertising externality exceeds the competitive externality

Question 18

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Accepted Answer

A)  the oligopolist has downward-sloping demand curve 
B)  the oligopolist produces where marginal revenue exceeds marginal cost 
C)  there are many buyers only in a monopolistically competitive market 
D)  there are many sellers in a monopolistically competitive market 
A)  the oligopolist has downward-sloping demand curve 
B)  the oligopolist produces where marginal revenue exceeds marginal cost 
C)  there are many buyers only in a monopolistically competitive market 
D)  there are many sellers in a monopolistically competitive market

Question 19

Advertisements that use celebrities to promote a product are likely to suggest that:

Accepted Answer

A)  the celebrity would only lend their endorsement to a quality product 
B)  everyone who consumes this product will be both rich and famous (like the celebrity) 
C)  celebrities are not concerned about their advertising image 
D)  none of the above statements are true 
A)  the celebrity would only lend their endorsement to a quality product 
B)  everyone who consumes this product will be both rich and famous (like the celebrity) 
C)  celebrities are not concerned about their advertising image 
D)  none of the above statements are true

Question 20

Which of the following market structures is consistent with many sellers in the marketplace? (i) perfect competition
(ii) monopolistic competition
(iii) monopoly
(iv) oligopoly

Accepted Answer

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

Exam 18: Monopolistic Competition

Policymakers do not accept the view that advertising enhances the efficiency of markets.

Given that firms in monopolistically competitive markets share the attribute of many sellers with firms in perfect competition, it follows that firms in both markets face horizontal demand curves.

The main reason that a monopolistically competitive market is considered inefficient is because:

Monopolistic competition is characterised by which of the following attributes? (i) many sellers (ii) product differentiation (iii) barriers to entry

When advertising is cheap:

Brand names have a useful function if the preference for brands has a rational basis.

As in a competitive market, monopolistically competitive firms:

Defenders of advertising would argue that advertising conveys information about which of the following? (i) the prices of goods offered for sale (ii) the existence of new products (iii) the location of retail outlets

If in the short run, a firm in a monopolistically competitive market is making a loss, then in the long run it will:

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social wellbeing of society.

The efficient scale occurs when the firm's:

You intend travelling to Shanghai, China, to market truck-parts to local manufacturers. Your travel agent provides a list of 120 local hotels and a Sheraton. In this case, the Sheraton brand-name is likely to be used as a signal of:

In monopolistically competitive markets, economic profits will eventually lead to:

The deadweight loss that is associated with a monopolistically competitive market is a result of:

The reason that monopoly remains a root-word for monopolistically competitive market is because of:

A new brewing company announces that it is releasing a new organic ale into the beer market. You can assume that the market for beer is characterised by monopolistic competition. According to the information provided, the beer market is likely to be more efficient if the:

What is the main point of difference between a monopolistically competitive market and an oligopoly?

Advertisements that use celebrities to promote a product are likely to suggest that:

Which of the following market structures is consistent with many sellers in the marketplace? (i) perfect competition (ii) monopolistic competition (iii) monopoly (iv) oligopoly

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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