Question 1

One way in which monopolistic competition differs from oligopoly is that

Accepted Answer

A)  there are no barriers to entry in oligopolies. 
B)  in oligopoly markets there are only a few sellers. 
C)  all firms in an oligopoly eventually earn zero economic profits. 
D)  strategic interactions between firms are rare in oligopolies. 
A)  there are no barriers to entry in oligopolies. 
B)  in oligopoly markets there are only a few sellers. 
C)  all firms in an oligopoly eventually earn zero economic profits. 
D)  strategic interactions between firms are rare in oligopolies.

Question 2

Product differentiation causes the seller of a good to face what type of demand curve?

Accepted Answer

A)  downward sloping 
B)  vertical 
C)  horizontal 
D)  Any of the above could be correct since product differentiation does not affect the shape of the demand curve. 
A)  downward sloping 
B)  vertical 
C)  horizontal 
D)  Any of the above could be correct since product differentiation does not affect the shape of the demand curve.

Question 3

Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.

Accepted Answer

Business-stealing effect: incumbent firm

Question 4

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

Accepted Answer

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

Question 5

How does advertising signal to consumers that the product is a good one?

Accepted Answer

A)  By seeing famous people using the product,consumers infer that they too can be famous. 
B)  By being willing to spend money on advertising,firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. 
C)  By making consumers laugh during commercials,firms are associating positive experiences with the product. 
D)  Without allowing consumers to actually use the product,it is not possible for firms to signal to consumers the product's quality. 
A)  By seeing famous people using the product,consumers infer that they too can be famous. 
B)  By being willing to spend money on advertising,firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. 
C)  By making consumers laugh during commercials,firms are associating positive experiences with the product. 
D)  Without allowing consumers to actually use the product,it is not possible for firms to signal to consumers the product's quality.

Question 6

Figure 16-4  
-Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

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 7

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

A)  all states in the United States prohibited advertising by optometrists. 
B)  almost all professional optometrists opposed legal restrictions on their rights to advertise. 
C)  the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed. 
D)  advertising on eyeglasses limited competition among optometrists. 
A)  all states in the United States prohibited advertising by optometrists. 
B)  almost all professional optometrists opposed legal restrictions on their rights to advertise. 
C)  the average price of eyeglasses would decrease if the legal restrictions on advertising by optometrists were removed. 
D)  advertising on eyeglasses limited competition among optometrists.

Question 8

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

Accepted Answer

A)  price exceeds marginal cost. 
B)  marginal revenue exceeds marginal cost. 
C)  marginal cost exceeds average revenue. 
D)  price equals marginal revenue. 
A)  price exceeds marginal cost. 
B)  marginal revenue exceeds marginal cost. 
C)  marginal cost exceeds average revenue. 
D)  price equals marginal revenue.

Question 9

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

Accepted Answer

A)  information about the availability of the product. 
B)  information about product price. 
C)  a signal of product quality. 
D)  a good example of wasted resources. 
A)  information about the availability of the product. 
B)  information about product price. 
C)  a signal of product quality. 
D)  a good example of wasted resources.

Question 10

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.What is the concentration ratio for Industry B?

Accepted Answer

A)  about 12% 
B)  about 32% 
C)  about 39% 
D)  about 51% 
A)  about 12% 
B)  about 32% 
C)  about 39% 
D)  about 51%

Question 11

In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

Accepted Answer

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

Question 12

In a monopolistically competitive market,

Accepted Answer

A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run. 
A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run.

Question 13

If advertising reduces a consumer's price sensitivity between identical goods,it is likely to

Accepted Answer

A)  increase the elasticity of demand for differentiated products. 
B)  enhance competition and encourage more product diversity. 
C)  reduce competition and reduce social welfare. 
D)  encourage the consumption of all homogenous goods. 
A)  increase the elasticity of demand for differentiated products. 
B)  enhance competition and encourage more product diversity. 
C)  reduce competition and reduce social welfare. 
D)  encourage the consumption of all homogenous goods.

Question 14

Figure 16-1.The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Accepted Answer

A)  with its minimum at the point (Q = 12,P = $18). 
B)  with its minimum at the point (Q = 12,P = $12). 
C)  tangent to the demand curve at the point (Q = 12,P = $18). 
D)  tangent to the demand curve at the point (Q = 16,P = $16). 
A)  with its minimum at the point (Q = 12,P = $18). 
B)  with its minimum at the point (Q = 12,P = $12). 
C)  tangent to the demand curve at the point (Q = 12,P = $18). 
D)  tangent to the demand curve at the point (Q = 16,P = $16).

Question 15

Edward Chamberlin argued that brand names

Accepted Answer

A)  hampered market efficiency. 
B)  were instrumental in enhancing market efficiency. 
C)  were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks. 
D)  were likely to be more socially efficient when used in conjunction with advertising. 
A)  hampered market efficiency. 
B)  were instrumental in enhancing market efficiency. 
C)  were useful in enhancing market efficiency when the government enforced the use of exclusive trademarks. 
D)  were likely to be more socially efficient when used in conjunction with advertising.

Question 16

Professional organizations (for example,the American Medical Association and the American Bar Association)have been active advocates for regulation to restrict the right of professionals to advertise.Describe what economic incentives might exist for existing professionals to restrict advertising.

Accepted Answer

If advertising increases information abo

Question 17

Figure 16-1.The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

Accepted Answer

A)  $18. 
B)  $24. 
C)  $36. 
D)  $45. 
A)  $18. 
B)  $24. 
C)  $36. 
D)  $45.

Question 18

In monopolistically competitive markets,free entry and exit suggests that

Accepted Answer

A)  the market structure will eventually be characterized by perfect competition in the long run. 
B)  all firms earn zero economic profits in the long run. 
C)  some firms will be able to earn economic profits in the long run. 
D)  some firms will be forced to incur economic losses in the long run. 
A)  the market structure will eventually be characterized by perfect competition in the long run. 
B)  all firms earn zero economic profits in the long run. 
C)  some firms will be able to earn economic profits in the long run. 
D)  some firms will be forced to incur economic losses in the long run.

Question 19

The relationship between advertising and product differentiation is

Accepted Answer

A)  positive;the more differentiated the product,the more a firm is likely to spend on advertising. 
B)  negative;the more differentiated the product,the less a firm is likely to spend on advertising. 
C)  zero;there is no relationship between product differentiation and advertising. 
D)  irrelevant;firms with differentiated products do not need to advertise. 
A)  positive;the more differentiated the product,the more a firm is likely to spend on advertising. 
B)  negative;the more differentiated the product,the less a firm is likely to spend on advertising. 
C)  zero;there is no relationship between product differentiation and advertising. 
D)  irrelevant;firms with differentiated products do not need to advertise.

Question 20

Which of the following statements is correct?

Accepted Answer

A)  Cigarettes are likely to be produced in a monopolistically competitive industry. 
B)  Novels are likely to be produced in a monopoly industry. 
C)  Movies are likely to be produced in a monopolistically competitive industry. 
D)  Milk is likely to be produced in an oligopoly industry. 
A)  Cigarettes are likely to be produced in a monopolistically competitive industry. 
B)  Novels are likely to be produced in a monopoly industry. 
C)  Movies are likely to be produced in a monopolistically competitive industry. 
D)  Milk is likely to be produced in an oligopoly industry.

Exam 16: Monopolistic Competition

One way in which monopolistic competition differs from oligopoly is that

Product differentiation causes the seller of a good to face what type of demand curve?

Entry of firms in a monopolistically competitive industry is characterized by two externalities.List them and briefly describe how consumers and existing firms are influenced by them.

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

How does advertising signal to consumers that the product is a good one?

Figure 16-4 -Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry?

A study of the market for optometrists' services in the 1960s showed that

For a monopolistically competitive firm,at the profit-maximizing quantity of output,

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

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.What is the concentration ratio for Industry B?

In markets where restrictions on advertising have been used to curtail competition,the U.S.courts have generally

In a monopolistically competitive market,

If advertising reduces a consumer's price sensitivity between identical goods,it is likely to

Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Edward Chamberlin argued that brand names

Professional organizations (for example,the American Medical Association and the American Bar Association)have been active advocates for regulation to restrict the right of professionals to advertise.Describe what economic incentives might exist for existing professionals to restrict advertising.

Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

In monopolistically competitive markets,free entry and exit suggests that

The relationship between advertising and product differentiation is

Which of the following statements is correct?

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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