Question 1

Some firms have an incentive to advertise because they sell a

Accepted Answer

A)  similar product and charge a price equal to marginal cost. 
B)  similar product and charge a price above marginal cost. 
C)  differentiated product and charge a price equal to marginal cost. 
D)  differentiated product and charge a price above marginal cost. 
A)  similar product and charge a price equal to marginal cost. 
B)  similar product and charge a price above marginal cost. 
C)  differentiated product and charge a price equal to marginal cost. 
D)  differentiated product and charge a price above marginal cost.

Question 2

Which of the following statements regarding monopolistic competition is not correct?

Accepted Answer

A)  In the long-run equilibrium,price equals average total cost. 
B)  In the long-run equilibrium,firms earn zero economic profit. 
C)  In the long-run equilibrium,firms charge a price above marginal cost. 
D)  In the long-run equilibrium,firms produce a quantity in excess of their efficient scale. 
A)  In the long-run equilibrium,price equals average total cost. 
B)  In the long-run equilibrium,firms earn zero economic profit. 
C)  In the long-run equilibrium,firms charge a price above marginal cost. 
D)  In the long-run equilibrium,firms produce a quantity in excess of their efficient scale.

Question 3

A monopolistically competitive industry is characterized by

Accepted Answer

A)  many firms,differentiated products,and barriers to entry. 
B)  many firms,differentiated products,and free entry. 
C)  a few firms,identical products,and free entry. 
D)  a few firms,differentiated products,and barriers to entry. 
A)  many firms,differentiated products,and barriers to entry. 
B)  many firms,differentiated products,and free entry. 
C)  a few firms,identical products,and free entry. 
D)  a few firms,differentiated products,and barriers to entry.

Question 4

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and free entry.

Accepted Answer

A) True 
 B)False

Question 5

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

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 A decides to advertise its product it can expect to

Accepted Answer

A)  incur a loss of $8 million. 
B)  incur a loss of $4 million. 
C)  earn a profit of $4 million. 
D)  earn a profit of $8 million. 
A)  incur a loss of $8 million. 
B)  incur a loss of $4 million. 
C)  earn a profit of $4 million. 
D)  earn a profit of $8 million.

Question 7

Figure 16-3  
-Refer to Figure 16-3.The firm in this figure is monopolistically competitive.It illustrates

Accepted Answer

A)  the shut-down case. 
B)  a long-run economic profit. 
C)  a short-run economic profit. 
D)  a short-run loss. 
A)  the shut-down case. 
B)  a long-run economic profit. 
C)  a short-run economic profit. 
D)  a short-run loss.

Question 8

Assume the role of a critic of advertising.Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

Accepted Answer

Advertising manipulates people's tastes

Question 9

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

Accepted Answer

A)  produces an output level where marginal revenue equals average total cost. 
B)  sets price equal to demand where marginal revenue equals marginal cost. 
C)  must earn zero economic profits. 
D)  maximizes revenues as well as profits. 
A)  produces an output level where marginal revenue equals average total cost. 
B)  sets price equal to demand where marginal revenue equals marginal cost. 
C)  must earn zero economic profits. 
D)  maximizes revenues as well as profits.

Question 10

In a long-run equilibrium,

Accepted Answer

A)  excess capacity applies to monopolistically competitive firms but not to competitive firms. 
B)  zero economic profit applies to competitive firms but not to monopolistically competitive firms. 
C)  markup over marginal cost applies to both monopolistically competitive and competitive firms. 
D)  product variety externalities apply to both perfectly competitive firms and monopolistically competitive firms. 
A)  excess capacity applies to monopolistically competitive firms but not to competitive firms. 
B)  zero economic profit applies to competitive firms but not to monopolistically competitive firms. 
C)  markup over marginal cost applies to both monopolistically competitive and competitive firms. 
D)  product variety externalities apply to both perfectly competitive firms and monopolistically competitive firms.

Question 11

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 A?

Accepted Answer

A)  about 71% 
B)  about 81% 
C)  about 88% 
D)  100% 
A)  about 71% 
B)  about 81% 
C)  about 88% 
D)  100%

Question 12

Table 16-5
Traci's Hairstyling is one salon among many in the market for hairstyling.The following table presents cost and revenue data for hair cuts at Traci's Hairstyling.
  
-Refer to Table 16-5.What is the profit-maximizing output for Traci's Hairstyling?

Accepted Answer

A)  3 haircuts 
B)  4 haircuts 
C)  5 haircuts 
D)  6 haircuts 
A)  3 haircuts 
B)  4 haircuts 
C)  5 haircuts 
D)  6 haircuts

Question 13

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Accepted Answer

A) True 
 B)False

Question 14

Compared to other firms,firms that sell highly differentiated products likely incur significant costs associated with

Accepted Answer

A)  advertising. 
B)  the product-variety externality. 
C)  intermediate materials. 
D)  taxes and regulation. 
A)  advertising. 
B)  the product-variety externality. 
C)  intermediate materials. 
D)  taxes and regulation.

Question 15

Monopolistic competition is an inefficient market structure because

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  it has a deadweight loss,just as monopoly does. 
C)  long-run profits are zero due to free entry. 
D)  All of the above are correct. 
A)  marginal revenue equals marginal cost. 
B)  it has a deadweight loss,just as monopoly does. 
C)  long-run profits are zero due to free entry. 
D)  All of the above are correct.

Question 16

Regulation of a firm in a monopolistically competitive market

Accepted Answer

A)  usually implies a very small administrative burden. 
B)  will lower the firm's costs. 
C)  is commonly used to enhance market efficiency. 
D)  is unlikely to improve market efficiency. 
A)  usually implies a very small administrative burden. 
B)  will lower the firm's costs. 
C)  is commonly used to enhance market efficiency. 
D)  is unlikely to improve market efficiency.

Question 17

Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)

Accepted Answer

A)  oligopoly or perfectly competitive market. 
B)  oligopoly or monopoly market. 
C)  oligopoly or monopolistically competitive market. 
D)  monopoly or monopolistically competitive market. 
A)  oligopoly or perfectly competitive market. 
B)  oligopoly or monopoly market. 
C)  oligopoly or monopolistically competitive market. 
D)  monopoly or monopolistically competitive market.

Question 18

Monopolistic competition is an

Accepted Answer

A)  inefficient market structure because there is deadweight loss. 
B)  inefficient market structure because price exceeds marginal cost. 
C)  efficient market structure because free entry drives long-run profits to zero. 
D)  Both a and b are correct. 
A)  inefficient market structure because there is deadweight loss. 
B)  inefficient market structure because price exceeds marginal cost. 
C)  efficient market structure because free entry drives long-run profits to zero. 
D)  Both a and b are correct.

Question 19

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 20

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.By its willingness to spend money on advertising,Firm B

Accepted Answer

A)  signals the quality of its new product to consumers. 
B)  signals that it is not a profit maximizer. 
C)  is detracting from the efficiency of markets. 
D)  will drive Firm A out of the market. 
A)  signals the quality of its new product to consumers. 
B)  signals that it is not a profit maximizer. 
C)  is detracting from the efficiency of markets. 
D)  will drive Firm A out of the market.

Exam 16: Monopolistic Competition

Some firms have an incentive to advertise because they sell a

Which of the following statements regarding monopolistic competition is not correct?

A monopolistically competitive industry is characterized by

Monopolistic competition is characterized by many buyers and sellers,product differentiation,and free entry.

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

Figure 16-3 -Refer to Figure 16-3.The firm in this figure is monopolistically competitive.It illustrates

Assume the role of a critic of advertising.Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

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

In a long-run equilibrium,

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 A?

Table 16-5 Traci's Hairstyling is one salon among many in the market for hairstyling.The following table presents cost and revenue data for hair cuts at Traci's Hairstyling. -Refer to Table 16-5.What is the profit-maximizing output for Traci's Hairstyling?

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Compared to other firms,firms that sell highly differentiated products likely incur significant costs associated with

Monopolistic competition is an inefficient market structure because

Regulation of a firm in a monopolistically competitive market

Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n)

Monopolistic competition is an

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

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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