Question 1

A monopolistically competitive firm, unlike a perfectly competitive firm, could increase the quantity it produces and lower the:

Accepted Answer

A)  demand for its product 
B)  average total cost of production 
C)  total fixed costs of production 
D)  average fixed costs of production 
A)  demand for its product 
B)  average total cost of production 
C)  total fixed costs of production 
D)  average fixed costs of production

Question 2

The debate over whether advertising serves a valuable purpose in society is still unconfirmed by economists.

Accepted Answer

A) True 
 B)False

Question 3

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, beer consumers are likely to experience what kind of externality as a result of the new ale?

Accepted Answer

A)  product-variety 
B)  business-stealing 
C)  market price 
D)  advertising 
A)  product-variety 
B)  business-stealing 
C)  market price 
D)  advertising

Question 4

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Accepted Answer

A)  it will be able to increase its mark-up over marginal cost 
B)  the firm will eventually have to lower its price to remain competitive 
C)  it will increase the wellbeing of society 
D)  it will reduce average total cost 
A)  it will be able to increase its mark-up over marginal cost 
B)  the firm will eventually have to lower its price to remain competitive 
C)  it will increase the wellbeing of society 
D)  it will reduce average total cost

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

Accepted Answer

A)  shift in an unpredictable direction 
B)  shift to the right 
C)  shift to the left 
D)  remain unchanged; only the supply curve will shift 
A)  shift in an unpredictable direction 
B)  shift to the right 
C)  shift to the left 
D)  remain unchanged; only the supply curve will shift

Question 7

In the long-run equilibrium in a monopolistic market, a profit-maximising firm's output is where marginal cost is less than marginal revenue.

Accepted Answer

A) True 
 B)False

Question 8

A monopolistically competitive firm chooses its production level the same way as a(n):

Accepted Answer

A)  duopolist 
B)  oligopolist 
C)  perfectly competitive firm 
D)  monopolist 
A)  duopolist 
B)  oligopolist 
C)  perfectly competitive firm 
D)  monopolist

Question 9

Which of the following markets impose deadweight losses on society? (i) monopoly
(ii) monopolistic competition
(iii) oligopoly

Accepted Answer

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

Question 10

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

Accepted Answer

A) True 
 B)False

Question 11

When advertising is used to strengthen brand loyalty:

Accepted Answer

A)  consumers become less sensitive to price differences among similar goods 
B)  demand for the product becomes more elastic 
C)  firms should lower price to increase revenue 
D)  consumer demand for related products is typically unaffected 
A)  consumers become less sensitive to price differences among similar goods 
B)  demand for the product becomes more elastic 
C)  firms should lower price to increase revenue 
D)  consumer demand for related products is typically unaffected

Question 12

How might a brand name ensure that customers buy high-quality goods?

Accepted Answer

There are two related arguments. Brand n

Question 13

In a small university town, four micro-breweries have opened in the last two years. Demonstrate the effect of these new market entrants on demand for incumbent firms (micro-breweries) that already served this market.
Assume that the local community now places a moratorium on new liquor licenses for micro-breweries. How will this moratorium affect the long-run profitability of incumbent firms?

Accepted Answer

The arrival of a new entrant should be g

Question 14

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Accepted Answer

A)  are superior quality 
B)  have low prices 
C)  have high prices 
D)  are inferior quality 
A)  are superior quality 
B)  have low prices 
C)  have high prices 
D)  are inferior quality

Question 15

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example where:

Accepted Answer

A)  brand name identity increases the effectiveness of markets 
B)  advertising is ineffective in salvaging perceptions of product quality 
C)  advertising cannot be used to establish brand loyalty 
D)  brand name identity can be detrimental to the profitability of a firm 
A)  brand name identity increases the effectiveness of markets 
B)  advertising is ineffective in salvaging perceptions of product quality 
C)  advertising cannot be used to establish brand loyalty 
D)  brand name identity can be detrimental to the profitability of a firm

Question 16

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost:

Accepted Answer

A)  monopolistically competitive firms would respond by lowering their costs 
B)  new firms that enter the market would use better technology 
C)  many firms will experience increased profits 
D)  many firms would require a subsidy to stay in business 
A)  monopolistically competitive firms would respond by lowering their costs 
B)  new firms that enter the market would use better technology 
C)  many firms will experience increased profits 
D)  many firms would require a subsidy to stay in business

Question 17

Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

Accepted Answer

A)  the firm makes a loss in the short run and the long run 
B)  the firm makes a profit in the short run and the long run 
C)  the firm's demand curve will shift to the left as new firms enter the market 
D)  the firm's demand curve will shift to the right as new firms leave the market 
A)  the firm makes a loss in the short run and the long run 
B)  the firm makes a profit in the short run and the long run 
C)  the firm's demand curve will shift to the left as new firms enter the market 
D)  the firm's demand curve will shift to the right as new firms leave the market

Question 18

In the long run, a firm in a perfectly competitive market operates at:

Accepted Answer

A)  efficient scale and a monopolistically competitive firm operates at excess capacity 
B)  efficient scale and a monopolistically competitive firm operates at efficient scale 
C)  excess capacity and a monopolistically competitive firm operates at excess capacity 
D)  excess capacity and a monopolistically competitive firm operates at efficient scale 
A)  efficient scale and a monopolistically competitive firm operates at excess capacity 
B)  efficient scale and a monopolistically competitive firm operates at efficient scale 
C)  excess capacity and a monopolistically competitive firm operates at excess capacity 
D)  excess capacity and a monopolistically competitive firm operates at efficient scale

Question 19

An important distinction between a profit-maximising firm in a monopolistically competitive market differs and a firm in a perfectly competitive market is the firm in the monopolistically competitive market:

Accepted Answer

A)  faces a downward-sloping demand curve for its product 
B)  faces a horizontal demand curve at the market clearing price 
C)  is characterised by market share maximisation 
D)  produces where marginal cost is equal to marginal revenue 
A)  faces a downward-sloping demand curve for its product 
B)  faces a horizontal demand curve at the market clearing price 
C)  is characterised by market share maximisation 
D)  produces where marginal cost is equal to marginal revenue

Question 20

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the effect of brand names on market efficiency.

Accepted Answer

A) True 
 B)False

Exam 18: Monopolistic Competition

A monopolistically competitive firm, unlike a perfectly competitive firm, could increase the quantity it produces and lower the:

The debate over whether advertising serves a valuable purpose in society is still unconfirmed by economists.

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

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

When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will:

In the long-run equilibrium in a monopolistic market, a profit-maximising firm's output is where marginal cost is less than marginal revenue.

A monopolistically competitive firm chooses its production level the same way as a(n):

Which of the following markets impose deadweight losses on society? (i) monopoly (ii) monopolistic competition (iii) oligopoly

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

When advertising is used to strengthen brand loyalty:

How might a brand name ensure that customers buy high-quality goods?

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example where:

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost:

Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

In the long run, a firm in a perfectly competitive market operates at:

An important distinction between a profit-maximising firm in a monopolistically competitive market differs and a firm in a perfectly competitive market is the firm in the monopolistically competitive market:

There is general disagreement among economists about the role of advertising, but there is widespread agreement about the effect of brand names on market efficiency.

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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