Question 1

Figure 16-3  
-Refer to Figure 16-3.The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $5,000. 
A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $5,000.

Question 2

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

Accepted Answer

@#IMG-DLM& The arrival of a new entrant should be

Question 3

Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the following statements is correct?

Accepted Answer

A)  Both Firm A and Firm B would be eager to make an additional sale. 
B)  Firm A would be eager to make an additional sale,but Firm B would not care whether it made an additional sale or not. 
C)  Firm B would be eager to make an additional sale,but Firm A would not care whether it made an additional sale or not. 
D)  Neither Firm A nor Firm B would care whether it made an additional sale or not. 
A)  Both Firm A and Firm B would be eager to make an additional sale. 
B)  Firm A would be eager to make an additional sale,but Firm B would not care whether it made an additional sale or not. 
C)  Firm B would be eager to make an additional sale,but Firm A would not care whether it made an additional sale or not. 
D)  Neither Firm A nor Firm B would care whether it made an additional sale or not.

Question 4

Cecilia's Café operates in a monopolistically competitive market.Cecilia's is currently producing where its average total cost is minimized.In the long run we would expect Cecilia's output to

Accepted Answer

A)  decrease and average total cost to increase. 
B)  decrease and average total cost to decrease. 
C)  remain unchanged as Cecilia's is doing the best it can. 
D)  increase and average total costs to decrease. 
A)  decrease and average total cost to increase. 
B)  decrease and average total cost to decrease. 
C)  remain unchanged as Cecilia's is doing the best it can. 
D)  increase and average total costs to decrease.

Question 5

Figure 16-4  
-Refer to Figure 16-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

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 6

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Accepted Answer

A) True 
 B)False

Question 7

Crude oil is primarily supplied to the world market by a few Middle Eastern countries.Such a market is an example of a(n)

Accepted Answer

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

Question 8

Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q1 units of output.This level of output,Q1,

Accepted Answer

A)  exceeds the level of output at which marginal revenue equals marginal cost. 
B)  exceeds the level of output at which marginal cost equals average total cost. 
C)  falls short of the level of output at which price equals marginal cost. 
D)  exceeds the firm's efficient scale of output. 
A)  exceeds the level of output at which marginal revenue equals marginal cost. 
B)  exceeds the level of output at which marginal cost equals average total cost. 
C)  falls short of the level of output at which price equals marginal cost. 
D)  exceeds the firm's efficient scale of output.

Question 9

Scenario 16-3
Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units.
-Refer to Scenario 16-3.If firm B decides to advertise its product it can expect to

Accepted Answer

A)  earn a profit of $48 million per year. 
B)  earn a profit of $36 million per year. 
C)  earn a profit of $12 million per year. 
D)  incur a loss of $12 million per year. 
A)  earn a profit of $48 million per year. 
B)  earn a profit of $36 million per year. 
C)  earn a profit of $12 million per year. 
D)  incur a loss of $12 million per year.

Question 10

Eunice consumes Coke exclusively.She claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in her mouth.However,in a blind taste test,Eunice is found to prefer generic store-brand cola to Coke eight out of ten times.The results of Eunice's taste test would reinforce claims by critics of brand names that

Accepted Answer

A)  consumers are always willing to pay more for brand names. 
B)  brand names cause consumers to perceive differences that do not really exist. 
C)  brand names cause consumers to be more sensitive to product differences. 
D)  brand names are a form of socially efficient advertising. 
A)  consumers are always willing to pay more for brand names. 
B)  brand names cause consumers to perceive differences that do not really exist. 
C)  brand names cause consumers to be more sensitive to product differences. 
D)  brand names are a form of socially efficient advertising.

Question 11

In a monopolistically competitive market,the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

Accepted Answer

A) True 
 B)False

Question 12

When a market is monopolistically competitive,the typical firm in the market can earn

Accepted Answer

A)  losses in the short run and profits in the long run. 
B)  profits in the short run and the long run. 
C)  losses in the short run and zero profit in the long run. 
D)  zero profit in the short run and losses in the long run. 
A)  losses in the short run and profits in the long run. 
B)  profits in the short run and the long run. 
C)  losses in the short run and zero profit in the long run. 
D)  zero profit in the short run and losses in the long run.

Question 13

Figure 16-1.The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-1.If the average variable cost is $12 at the profit-maximizing quantity,and if the firm's fixed costs amount to $30,then the firm's maximum profit is

Accepted Answer

A)  $-30. 
B)  $22. 
C)  $36. 
D)  $42. 
A)  $-30. 
B)  $22. 
C)  $36. 
D)  $42.

Question 14

Which of the following is not an argument made by critics of advertising?

Accepted Answer

A)  Advertising manipulates people's tastes. 
B)  Advertising impedes competition. 
C)  Advertising promotes economies of scale. 
D)  Advertising increases the perception of product differentiation. 
A)  Advertising manipulates people's tastes. 
B)  Advertising impedes competition. 
C)  Advertising promotes economies of scale. 
D)  Advertising increases the perception of product differentiation.

Question 15

A monopolistically competitive firm faces the following demand curve for its product:
 
The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.We can conclude that

Accepted Answer

A)  firms will exit this market. 
B)  firms will enter this market. 
C)  this market is in long-run equilibrium. 
D)  this firm is operating at its efficient scale. 
A)  firms will exit this market. 
B)  firms will enter this market. 
C)  this market is in long-run equilibrium. 
D)  this firm is operating at its efficient scale.

Question 16

If firms in a monopolistically competitive market are earning positive profits,then

Accepted Answer

A)  firms will likely be subject to regulation. 
B)  barriers to entry will be strengthened. 
C)  some firms will exit the market. 
D)  new firms will enter the market. 
A)  firms will likely be subject to regulation. 
B)  barriers to entry will be strengthened. 
C)  some firms will exit the market. 
D)  new firms will enter the market.

Question 17

A monopolistically competitive firm has the following cost structure:
 
The firm faces the following demand curve:
 
To maximize profit (or minimize losses),the firm will produce

Accepted Answer

A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units. 
A)  2 units. 
B)  3 units. 
C)  4 units. 
D)  5 units.

Question 18

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A)  a large number of sellers 
B)  firms are price takers 
C)  free entry into the market 
D)  a differentiated product 
A)  a large number of sellers 
B)  firms are price takers 
C)  free entry into the market 
D)  a differentiated product

Question 19

Which of the following statements is not correct?

Accepted Answer

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

Question 20

A market is comprised of many firms as opposed to just one firm or a few firms

Accepted Answer

A)  only when it is perfectly competitive. 
B)  only when it is perfectly competitive or oligopolistic. 
C)  only when it is perfectly competitive or monopolistically competitive. 
D)  when it is perfectly competitive,monopolistically competitive,or oligopolistic. 
A)  only when it is perfectly competitive. 
B)  only when it is perfectly competitive or oligopolistic. 
C)  only when it is perfectly competitive or monopolistically competitive. 
D)  when it is perfectly competitive,monopolistically competitive,or oligopolistic.

Exam 16: Monopolistic Competition

Figure 16-3 -Refer to Figure 16-3.The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the following statements is correct?

Cecilia's Café operates in a monopolistically competitive market.Cecilia's is currently producing where its average total cost is minimized.In the long run we would expect Cecilia's output to

Figure 16-4 -Refer to Figure 16-4.Which of the panels depicts a firm in a monopolistically competitive market earning positive economic profits?

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Crude oil is primarily supplied to the world market by a few Middle Eastern countries.Such a market is an example of a(n)

Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q1 units of output.This level of output,Q1,

In a monopolistically competitive market,the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

When a market is monopolistically competitive,the typical firm in the market can earn

Figure 16-1.The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.If the average variable cost is $12 at the profit-maximizing quantity,and if the firm's fixed costs amount to $30,then the firm's maximum profit is

Which of the following is not an argument made by critics of advertising?

A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.We can conclude that

If firms in a monopolistically competitive market are earning positive profits,then

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: To maximize profit (or minimize losses),the firm will produce

Which of the following is not a characteristic of monopolistic competition?

Which of the following statements is not correct?

A market is comprised of many firms as opposed to just one firm or a few firms

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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Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q₁ units of output.This level of output,Q₁,