Question 1

Both monopolistic competition and oligopoly are market structures

Accepted Answer

A)  that fail to achieve the total surplus achieved by perfect competition. 
B)  that feature only a few firms in each market. 
C)  to which the concept of Nash equilibrium is frequently applied by economists. 
D)  in which firms earn zero economic profit in the long run. 
A)  that fail to achieve the total surplus achieved by perfect competition. 
B)  that feature only a few firms in each market. 
C)  to which the concept of Nash equilibrium is frequently applied by economists. 
D)  in which firms earn zero economic profit in the long run.

Question 2

In the long run,a profit-maximizing firm in a monopolistically competitive market operates at

Accepted Answer

A)  efficient scale. 
B)  a level of output at which average total cost is rising. 
C)  a level of output at which average total cost is falling. 
D)  the level of output at which total revenue is maximized. 
A)  efficient scale. 
B)  a level of output at which average total cost is rising. 
C)  a level of output at which average total cost is falling. 
D)  the level of output at which total revenue is maximized.

Question 3

Figure 16-4  
-Refer to Figure 16-4.Panel a shows a profit-maximizing monopolistically competitive firm that is

Accepted Answer

A)  earning zero economic profit. 
B)  likely to exit the market in the long run. 
C)  producing its efficient scale of output. 
D)  not maximizing its profit. 
A)  earning zero economic profit. 
B)  likely to exit the market in the long run. 
C)  producing its efficient scale of output. 
D)  not maximizing its profit.

Question 4

Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already.Statistics show that vacancy rates average 15 percent during any given semester."

Accepted Answer

Business-stealing effect: if new entrant

Question 5

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Accepted Answer

A)  P = AR 
B)  MR = MC 
C)  P > MC 
D)  All of the above are correct. 
A)  P = AR 
B)  MR = MC 
C)  P > MC 
D)  All of the above are correct.

Question 6

In monopolistically competitive markets,economic losses

Accepted Answer

A)  suggest that some existing firms will exit the market. 
B)  suggest that new firms will enter the market. 
C)  are minimized through government-imposed barriers to entry. 
D)  are never possible. 
A)  suggest that some existing firms will exit the market. 
B)  suggest that new firms will enter the market. 
C)  are minimized through government-imposed barriers to entry. 
D)  are never possible.

Question 7

A profit-maximizing firm in a monopolistically competitive market can earn positive,negative,or zero profits in the short run.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Monopolistic competition is similar to monopoly because both market structures are characterized by patents. 
B)  Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market. 
C)  Monopolistic competition is similar to oligopoly because both market structures are characterized by free entry. 
D)  Monopolistic competition is similar to perfect competition because both market structures are characterized by excess capacity. 
A)  Monopolistic competition is similar to monopoly because both market structures are characterized by patents. 
B)  Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market. 
C)  Monopolistic competition is similar to oligopoly because both market structures are characterized by free entry. 
D)  Monopolistic competition is similar to perfect competition because both market structures are characterized by excess capacity.

Question 9

A firm in a monopolistically competitive market is similar to a monopoly in the sense that

Accepted Answer

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

Question 10

In a monopolistically competitive industry,firms set price

Accepted Answer

A)  equal to marginal cost since each firm is a price taker. 
B)  below marginal cost since each firm is a price taker. 
C)  above marginal cost since each firm is a price setter. 
D)  always a fraction of marginal cost since each firm is a price setter. 
A)  equal to marginal cost since each firm is a price taker. 
B)  below marginal cost since each firm is a price taker. 
C)  above marginal cost since each firm is a price setter. 
D)  always a fraction of marginal cost since each firm is a price setter.

Question 11

Figure 16-5  
-Refer to Figure 16-5.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

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 12

Figure 16-6  
-Refer to Figure 16-6.Which of the graphs depicts the situation for a profit-maximizing 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 13

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 to the left. 
B)  shift to the right. 
C)  shift in a direction that is unpredictable without further information. 
D)  remain unchanged.It is the supply curve that will shift. 
A)  shift to the left. 
B)  shift to the right. 
C)  shift in a direction that is unpredictable without further information. 
D)  remain unchanged.It is the supply curve that will shift.

Question 14

If we observe a great deal of advertising of dog food,we can infer that

Accepted Answer

A)  consumers spend very little of their disposable income on dog food. 
B)  dog food is cheap to produce. 
C)  dog food is a highly-differentiated product. 
D)  firms who do not advertise earn higher profits than those who do. 
A)  consumers spend very little of their disposable income on dog food. 
B)  dog food is cheap to produce. 
C)  dog food is a highly-differentiated product. 
D)  firms who do not advertise earn higher profits than those who do.

Question 15

Most businesses advertise their products and services.Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero.Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl.Having observed this real world data,economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's

Accepted Answer

A)  size. 
B)  quality. 
C)  newness. 
D)  cost of production. 
A)  size. 
B)  quality. 
C)  newness. 
D)  cost of production.

Question 16

Which of the following industries has the highest concentration ratio?

Accepted Answer

A)  wheat 
B)  novels 
C)  cigarettes 
D)  dog food 
A)  wheat 
B)  novels 
C)  cigarettes 
D)  dog food

Question 17

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

Accepted Answer

A) True 
 B)False

Question 18

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 C?

Accepted Answer

A)  about 23% 
B)  about 34% 
C)  about 43% 
D)  about 52% 
A)  about 23% 
B)  about 34% 
C)  about 43% 
D)  about 52%

Question 19

A monopolistically competitive firm chooses its

Accepted Answer

A)  price and quantity just as a monopoly does. 
B)  quantity but faces a horizontal demand curve just as a competitive firm does. 
C)  price but can sell any quantity at the market price just as an oligopoly does. 
D)  price and quantity based on the decisions of the other firms in the industry just as an oligopoly does. 
A)  price and quantity just as a monopoly does. 
B)  quantity but faces a horizontal demand curve just as a competitive firm does. 
C)  price but can sell any quantity at the market price just as an oligopoly does. 
D)  price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.

Question 20

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

Accepted Answer

A) True 
 B)False

Exam 16: Monopolistic Competition

Both monopolistic competition and oligopoly are market structures

In the long run,a profit-maximizing firm in a monopolistically competitive market operates at

Figure 16-4 -Refer to Figure 16-4.Panel a shows a profit-maximizing monopolistically competitive firm that is

Evaluate the following statement in the context of business-stealing and product-variety externalities: "We have too many student apartments in this town already.Statistics show that vacancy rates average 15 percent during any given semester."

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

In monopolistically competitive markets,economic losses

A profit-maximizing firm in a monopolistically competitive market can earn positive,negative,or zero profits in the short run.

Which of the following statements is correct?

A firm in a monopolistically competitive market is similar to a monopoly in the sense that

In a monopolistically competitive industry,firms set price

Figure 16-5 -Refer to Figure 16-5.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit?

Figure 16-6 -Refer to Figure 16-6.Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

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

If we observe a great deal of advertising of dog food,we can infer that

Which of the following industries has the highest concentration ratio?

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

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 C?

A monopolistically competitive firm chooses its

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

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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