Question 1

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

Accepted Answer

A)  firms are more likely to operate at efficient scale. 
B)  there are likely to be too many firms in a monopolistically competitive market. 
C)  market efficiency is likely to be enhanced by the entry of new firms. 
D)  all firms are earning economic losses. 
A)  firms are more likely to operate at efficient scale. 
B)  there are likely to be too many firms in a monopolistically competitive market. 
C)  market efficiency is likely to be enhanced by the entry of new firms. 
D)  all firms are earning economic losses.

Question 2

Scenario 16-1
Vacation Inns of America (VIA)has recently announced intentions to build a new hotel/resort complex in Myrtle Beach,South Carolina.Assume that the hotel/resort market in Myrtle Beach is characterized by monopolistic competition.
-Refer to Scenario 16-1.As a result of the new VIA hotel/resort,existing hotels,motels,and lodging facilities in Myrtle Beach are likely to experience a

Accepted Answer

A)  product-variety externality,which harms producers. 
B)  product-variety externality,which benefits producers. 
C)  business-stealing externality,which harms producers. 
D)  business-stealing externality,which benefits producers. 
A)  product-variety externality,which harms producers. 
B)  product-variety externality,which benefits producers. 
C)  business-stealing externality,which harms producers. 
D)  business-stealing externality,which benefits producers.

Question 3

Edward Chamberlin argued that governments should

Accepted Answer

A)  ban the use of brand names. 
B)  not enforce the trademarks that companies use to identify their products. 
C)  vigorously enforce the trademarks that companies use to identify their products. 
D)  tax companies whose products have brand names in proportion to how much consumers recognize their products. 
A)  ban the use of brand names. 
B)  not enforce the trademarks that companies use to identify their products. 
C)  vigorously enforce the trademarks that companies use to identify their products. 
D)  tax companies whose products have brand names in proportion to how much consumers recognize their products.

Question 4

Defenders of advertising

Accepted Answer

A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct. 
A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct.

Question 5

If "too much choice" is a problem for consumers,it would occur in which market structure(s)?

Accepted Answer

A)  perfect competition 
B)  monopoly 
C)  monopolistic competition 
D)  perfect competition and monopolistic competition 
A)  perfect competition 
B)  monopoly 
C)  monopolistic competition 
D)  perfect competition and monopolistic competition

Question 6

Oligopoly is characterized by a few sellers offering similar products,whereas monopolistic competition is characterized by many sellers offering differentiated products.

Accepted Answer

A) True 
 B)False

Question 7

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

Accepted Answer

A)  industrial products. 
B)  homogeneous products. 
C)  consumer goods for which there are no close substitutes. 
D)  highly-differentiated consumer goods. 
A)  industrial products. 
B)  homogeneous products. 
C)  consumer goods for which there are no close substitutes. 
D)  highly-differentiated consumer goods.

Question 8

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Accepted Answer

A)  The monopolistically competitive firm advertises. 
B)  The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C)  Monopolistic competition features many buyers. 
D)  Monopolistic competition features many sellers. 
A)  The monopolistically competitive firm advertises. 
B)  The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. 
C)  Monopolistic competition features many buyers. 
D)  Monopolistic competition features many sellers.

Question 9

Critics of advertising argue that advertising

Accepted Answer

A)  creates desires that otherwise might not exist. 
B)  enhances competition. 
C)  benefits television viewers who enjoy tv commercials. 
D)  All of the above are correct. 
A)  creates desires that otherwise might not exist. 
B)  enhances competition. 
C)  benefits television viewers who enjoy tv commercials. 
D)  All of the above are correct.

Question 10

In the short run,a firm operating in a monopolistically competitive market can earn

Accepted Answer

A)  positive economic profits. 
B)  economic losses. 
C)  zero economic profits. 
D)  All of the above are possible. 
A)  positive economic profits. 
B)  economic losses. 
C)  zero economic profits. 
D)  All of the above are possible.

Question 11

With respect to monopolistic competition,

Accepted Answer

A)  both the business-stealing externality and the product-variety externality are positive externalities. 
B)  the business-stealing externality is a positive externality,while the product-variety externality is a negative externality. 
C)  the business-stealing externality is a negative externality,while the product-variety externality is a positive externality. 
D)  both the business-stealing externality and the product-variety externality are negative externalities. 
A)  both the business-stealing externality and the product-variety externality are positive externalities. 
B)  the business-stealing externality is a positive externality,while the product-variety externality is a negative externality. 
C)  the business-stealing externality is a negative externality,while the product-variety externality is a positive externality. 
D)  both the business-stealing externality and the product-variety externality are negative externalities.

Question 12

Brand names are rarely used to convey information about product quality.

Accepted Answer

A) True 
 B)False

Question 13

If advertising decreases the elasticity of demand for specific brand names of hard liquor,we would expect firms to be able to charge a larger markup over marginal cost.

Accepted Answer

A) True 
 B)False

Question 14

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for each industry.
  
-Refer to Table 16-2.Which industry has the lowest concentration ratio?

Accepted Answer

A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D 
A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D

Question 15

Consider monopoly,monopolistic competition,and perfect competition.In which of these three market structures does a profit-maximizing firm experience zero economic profit?

Accepted Answer

A)  perfect competition only 
B)  perfect competition and monopolistic competition only 
C)  perfect competition,monopolistic competition,and monopoly 
D)  The answer cannot be determined without knowing whether the market is in the long run or short run. 
A)  perfect competition only 
B)  perfect competition and monopolistic competition only 
C)  perfect competition,monopolistic competition,and monopoly 
D)  The answer cannot be determined without knowing whether the market is in the long run or short run.

Question 16

In a monopolistically competitive market,

Accepted Answer

A)  there are only a few sellers. 
B)  each firm takes the price of its product as given. 
C)  firms can enter or exit the market without restrictions. 
D)  each firm produces a product that is essentially identical to the products of other firms in the market. 
A)  there are only a few sellers. 
B)  each firm takes the price of its product as given. 
C)  firms can enter or exit the market without restrictions. 
D)  each firm produces a product that is essentially identical to the products of other firms in the market.

Question 17

Monopolistically competitive markets may be socially inefficient because

Accepted Answer

A)  most firms produce inferior products. 
B)  government programs cannot effectively regulate price. 
C)  firms earn zero economic profit. 
D)  the market may have too much or too little entry by new firms. 
A)  most firms produce inferior products. 
B)  government programs cannot effectively regulate price. 
C)  firms earn zero economic profit. 
D)  the market may have too much or too little entry by new firms.

Question 18

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Accepted Answer

A)  there are too few firms to reach an efficient level of production. 
B)  firms do not operate at the output that minimizes average costs. 
C)  more advertising is needed to inform customers about product differences. 
D)  consumers do not have enough choice among the product varieties available. 
A)  there are too few firms to reach an efficient level of production. 
B)  firms do not operate at the output that minimizes average costs. 
C)  more advertising is needed to inform customers about product differences. 
D)  consumers do not have enough choice among the product varieties available.

Question 19

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

Accepted Answer

A) True 
 B)False

Question 20

The lower the concentration ratio,the

Accepted Answer

A)  more control an individual firm has to set prices. 
B)  more competitive the industry. 
C)  less competitive the industry. 
D)  Both a and c are correct. 
A)  more control an individual firm has to set prices. 
B)  more competitive the industry. 
C)  less competitive the industry. 
D)  Both a and c are correct.

Exam 16: Monopolistic Competition

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

Edward Chamberlin argued that governments should

Defenders of advertising

If "too much choice" is a problem for consumers,it would occur in which market structure(s)?

Oligopoly is characterized by a few sellers offering similar products,whereas monopolistic competition is characterized by many sellers offering differentiated products.

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Critics of advertising argue that advertising

In the short run,a firm operating in a monopolistically competitive market can earn

With respect to monopolistic competition,

Brand names are rarely used to convey information about product quality.

If advertising decreases the elasticity of demand for specific brand names of hard liquor,we would expect firms to be able to charge a larger markup over marginal cost.

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2.Which industry has the lowest concentration ratio?

Consider monopoly,monopolistic competition,and perfect competition.In which of these three market structures does a profit-maximizing firm experience zero economic profit?

In a monopolistically competitive market,

Monopolistically competitive markets may be socially inefficient because

The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because

Monopolistic competition is characterized by a few sellers offering similar products,whereas oligopoly is characterized by many sellers offering differentiated products.

The lower the concentration ratio,the

Ten Principles of 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

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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