Question 1

When consumers are exposed to additional choices that result from the introduction of a new product,

Accepted Answer

A)  their satisfaction is likely to be lowered as a result of their having to make additional choices. 
B)  a product-variety externality is said to occur. 
C)  an advertising externality is said to occur. 
D)  consumers are likely to experience negative consumption externalities. 
A)  their satisfaction is likely to be lowered as a result of their having to make additional choices. 
B)  a product-variety externality is said to occur. 
C)  an advertising externality is said to occur. 
D)  consumers are likely to experience negative consumption externalities.

Question 2

What do economists call a market structure in which there are many firms selling products that are similar but not identical?

Accepted Answer

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

Question 3

When existing firms lose customers and profits due to entry of a new competitor,a

Accepted Answer

A)  predatory-pricing externality occurs. 
B)  consumption externality occurs. 
C)  business-stealing externality occurs. 
D)  product-variety externality occurs. 
A)  predatory-pricing externality occurs. 
B)  consumption externality occurs. 
C)  business-stealing externality occurs. 
D)  product-variety externality occurs.

Question 4

A monopolistically competitive firm faces the following demand curve for its product:
 
The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit.The firm will maximize profit with the production of

Accepted Answer

A)  6 units of output. 
B)  8 units of output. 
C)  10 units of output. 
D)  12 units of output. 
A)  6 units of output. 
B)  8 units of output. 
C)  10 units of output. 
D)  12 units of output.

Question 5

Two college students,Josh and John,are spending spring break in Boston to visit Harvard University's law school.Josh buys a cup of coffee each morning at the local Dunkin' Donuts rather than from one of the local coffee shops.John claims that Josh is irrational because he never purchased Dunkin' Donuts' coffee at home,and Dunkin' Donuts' coffee costs more than the coffee sold by local shops.An economist would most likely explain Josh's behavior by suggesting that

Accepted Answer

A)  Josh's behavior is rational,but John's behavior is clearly irrational. 
B)  Josh's behavior is clearly irrational,but John's behavior is rational. 
C)  the Dunkin' Donuts brand name suggests consistent quality. 
D)  the advertising by Dunkin' Donuts in Boston is more persuasive than the advertising by Dunkin' Donuts in Josh and John's home town. 
A)  Josh's behavior is rational,but John's behavior is clearly irrational. 
B)  Josh's behavior is clearly irrational,but John's behavior is rational. 
C)  the Dunkin' Donuts brand name suggests consistent quality. 
D)  the advertising by Dunkin' Donuts in Boston is more persuasive than the advertising by Dunkin' Donuts in Josh and John's home town.

Question 6

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.
  
-Refer to Table 16-1.Which industry is the least competitive?

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 7

Figure 16-6  
-Refer to Figure 16-6.The firm depicted in panel b faces a horizontal demand curve.If panel b depicts a profit-maximizing firm,

Accepted Answer

A)  it could be operating in either a perfectly competitive market or in a monopolistically competitive market. 
B)  it would not have excess capacity in its production as long as it is earning zero economic profit. 
C)  it is able to choose the price at which it sells its product. 
D)  the firm can always raise its profit by increasing production since consumers will buy as much as the firm can produce. 
A)  it could be operating in either a perfectly competitive market or in a monopolistically competitive market. 
B)  it would not have excess capacity in its production as long as it is earning zero economic profit. 
C)  it is able to choose the price at which it sells its product. 
D)  the firm can always raise its profit by increasing production since consumers will buy as much as the firm can produce.

Question 8

Evidence suggests that,in markets with differentiated products but little advertising,

Accepted Answer

A)  consumers are not confused by conflicting signals. 
B)  firms are generally less profitable. 
C)  markets are less efficient. 
D)  consumers make better choices. 
A)  consumers are not confused by conflicting signals. 
B)  firms are generally less profitable. 
C)  markets are less efficient. 
D)  consumers make better choices.

Question 9

If firms in a particular market sell identical products,then the market is

Accepted Answer

A)  (i)or (ii)only 
B)  (ii)or (iii)only 
C)  (i)or (iii)only 
D)  (i)only 
A)  (i)or (ii)only 
B)  (ii)or (iii)only 
C)  (i)or (iii)only 
D)  (i)only

Question 10

According to the signaling theory of advertising,consumers

Accepted Answer

A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements. 
A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements.

Question 11

Monopolistically competitive firms have excess capacity.To maximize profits,firms will

Accepted Answer

A)  increase their output to lower their average total cost of production and eliminate the excess capacity. 
B)  produce where price equals marginal cost to eliminate the excess capacity. 
C)  produce where average revenue equals marginal cost to eliminate the excess capacity. 
D)  maintain the excess capacity. 
A)  increase their output to lower their average total cost of production and eliminate the excess capacity. 
B)  produce where price equals marginal cost to eliminate the excess capacity. 
C)  produce where average revenue equals marginal cost to eliminate the excess capacity. 
D)  maintain the excess capacity.

Question 12

Each firm in a monopolistically competitive market

Accepted Answer

A)  earns both short-run and long-run profits. 
B)  faces a downward-sloping demand curve. 
C)  cannot earn economic profit in the short run. 
D)  sets price equal to marginal cost. 
A)  earns both short-run and long-run profits. 
B)  faces a downward-sloping demand curve. 
C)  cannot earn economic profit in the short run. 
D)  sets price equal to marginal cost.

Question 13

As firms exit a monopolistically competitive market,profits of remaining firms

Accepted Answer

A)  decline,and product diversity in the market decreases. 
B)  decline,and product diversity in the market increases. 
C)  rise,and product diversity in the market decreases. 
D)  rise,and product diversity in the market increases. 
A)  decline,and product diversity in the market decreases. 
B)  decline,and product diversity in the market increases. 
C)  rise,and product diversity in the market decreases. 
D)  rise,and product diversity in the market increases.

Question 14

When a firm operates with excess capacity,

Accepted Answer

A)  additional production would lower the average total cost. 
B)  additional production would increase the average total cost. 
C)  it must be a perfectly competitive firm. 
D)  it must be a monopolistically competitive firm. 
A)  additional production would lower the average total cost. 
B)  additional production would increase the average total cost. 
C)  it must be a perfectly competitive firm. 
D)  it must be a monopolistically competitive firm.

Question 15

Monopolistic competition is characterized by

Accepted Answer

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

Question 16

Discuss how brand names may enhance the efficiency of markets in a less developed country.

Accepted Answer

Recognizable brand names signal quality

Question 17

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Accepted Answer

A)  marginal cost exceeds marginal revenue 
B)  average revenue equals marginal cost 
C)  price exceeds marginal cost 
D)  All of the above are correct. 
A)  marginal cost exceeds marginal revenue 
B)  average revenue equals marginal cost 
C)  price exceeds marginal cost 
D)  All of the above are correct.

Question 18

If firms in a monopolistically competitive market are incurring economic losses,which of the following scenarios would best describe the change existing firms (who are able to stay in the market)would face as the market adjusts to the long-run equilibrium?

Accepted Answer

A)  a downward shift in the marginal cost curve for each firm 
B)  an upward shift in the marginal cost curve for each firm 
C)  a decrease in demand for each firm 
D)  an increase in demand for each firm 
A)  a downward shift in the marginal cost curve for each firm 
B)  an upward shift in the marginal cost curve for each firm 
C)  a decrease in demand for each firm 
D)  an increase in demand for each firm

Question 19

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

Accepted Answer

A) True 
 B)False

Question 20

The two types of imperfectly competitive markets are

Accepted Answer

A)  markets with differentiated products and monopoly. 
B)  markets with differentiated products and oligopoly. 
C)  oligopoly and monopoly. 
D)  monopolistic competition and oligopoly. 
A)  markets with differentiated products and monopoly. 
B)  markets with differentiated products and oligopoly. 
C)  oligopoly and monopoly. 
D)  monopolistic competition and oligopoly.

Exam 16: Monopolistic Competition

When consumers are exposed to additional choices that result from the introduction of a new product,

What do economists call a market structure in which there are many firms selling products that are similar but not identical?

When existing firms lose customers and profits due to entry of a new competitor,a

A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit.The firm will maximize profit with the production of

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.Which industry is the least competitive?

Figure 16-6 -Refer to Figure 16-6.The firm depicted in panel b faces a horizontal demand curve.If panel b depicts a profit-maximizing firm,

Evidence suggests that,in markets with differentiated products but little advertising,

If firms in a particular market sell identical products,then the market is

According to the signaling theory of advertising,consumers

Monopolistically competitive firms have excess capacity.To maximize profits,firms will

Each firm in a monopolistically competitive market

As firms exit a monopolistically competitive market,profits of remaining firms

When a firm operates with excess capacity,

Monopolistic competition is characterized by

Discuss how brand names may enhance the efficiency of markets in a less developed country.

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

If firms in a monopolistically competitive market are incurring economic losses,which of the following scenarios would best describe the change existing firms (who are able to stay in the market)would face as the market adjusts to the long-run equilibrium?

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

The two types of imperfectly competitive markets are

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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