Question 1

In a monopolistically competitive market:

Accepted Answer

A)  there are significant barriers to the entry of new sellers. 
B)  firms sell differentiated products. 
C)  firms face horizontal demand curves. 
D)  there are a few producers selling standardized products. 
A)  there are significant barriers to the entry of new sellers. 
B)  firms sell differentiated products. 
C)  firms face horizontal demand curves. 
D)  there are a few producers selling standardized products.

Question 2

Which of the following observations is true?

Accepted Answer

A)  Monopolistically competitive sellers are price takers. 
B)  Monopolistically competitive sellers treat price in the same manner as in perfect competition. 
C)  Monopolistically competitive sellers regard price as a given by market conditions. 
D)  Monopolistically competitive sellers are price makers. 
A)  Monopolistically competitive sellers are price takers. 
B)  Monopolistically competitive sellers treat price in the same manner as in perfect competition. 
C)  Monopolistically competitive sellers regard price as a given by market conditions. 
D)  Monopolistically competitive sellers are price makers.

Question 3

Exhibit 14-2 The following diagram depicts monopolistically competitive firms.   Refer to Exhibit 14-2.In Graph A,the profit-maximizing (loss-minimizing)firm is making a ____,shown by the area ____.

Accepted Answer

A)  loss; P1 X Y W 
B)  profit; P1 X Y W 
C)  loss; P2 Z Y W 
D)  profit; P2 Z Y W 
A)  loss; P1 X Y W 
B)  profit; P1 X Y W 
C)  loss; P2 Z Y W 
D)  profit; P2 Z Y W

Question 4

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves.   Refer to Exhibit 14-5.Based on the diagram,it follows that:

Accepted Answer

A)  new firms will enter the industry. 
B)  existing firms will exit the industry. 
C)  the firm is operating in long-run equilibrium. 
D)  the firm could minimize average cost by producing 85 sweaters each week. 
A)  new firms will enter the industry. 
B)  existing firms will exit the industry. 
C)  the firm is operating in long-run equilibrium. 
D)  the firm could minimize average cost by producing 85 sweaters each week.

Question 5

The restaurant market in San Francisco is probably best categorized as:

Accepted Answer

A)  perfectly competitive. 
B)  monopolistic. 
C)  monopolistically competitive. 
D)  oligopolistic. 
A)  perfectly competitive. 
B)  monopolistic. 
C)  monopolistically competitive. 
D)  oligopolistic.

Question 6

If Mary wants to use advertising to reduce the elasticity of demand for her dry cleaning services,she should make sure the advertising:

Accepted Answer

A)  clearly states the prices she charges. 
B)  shows that she is producing a product like the other dry cleaners in town. 
C)  shows why her services are truly different from the other dry cleaners in town. 
D)  does none of the above. 
A)  clearly states the prices she charges. 
B)  shows that she is producing a product like the other dry cleaners in town. 
C)  shows why her services are truly different from the other dry cleaners in town. 
D)  does none of the above.

Question 7

When firms exit a monopolistically competitive industry:

Accepted Answer

A)  the average total cost curves of remaining firms will shift upward. 
B)  the demand curves of remaining firms are increased at each level of output. 
C)  the remaining firms will decrease production. 
D)  the average revenue received by remaining firms will decrease at each level of output. 
A)  the average total cost curves of remaining firms will shift upward. 
B)  the demand curves of remaining firms are increased at each level of output. 
C)  the remaining firms will decrease production. 
D)  the average revenue received by remaining firms will decrease at each level of output.

Question 8

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

Accepted Answer

A)  price greater than minimum average total cost 
B)  price equal to average total cost 
C)  marginal revenue equal to marginal cost 
D)  positive economic profits 
A)  price greater than minimum average total cost 
B)  price equal to average total cost 
C)  marginal revenue equal to marginal cost 
D)  positive economic profits

Question 9

In monopolistically competitive markets in long run equilibrium:

Accepted Answer

A)  more than the efficient level of output will be produced because price exceeds marginal cost. 
B)  less than the efficient level of output will be produced because price exceeds marginal cost. 
C)  more than the efficient level of output will be produced because marginal revenue exceeds marginal cost. 
D)  less than the efficient level of output will be produced because marginal revenue exceeds marginal cost. 
A)  more than the efficient level of output will be produced because price exceeds marginal cost. 
B)  less than the efficient level of output will be produced because price exceeds marginal cost. 
C)  more than the efficient level of output will be produced because marginal revenue exceeds marginal cost. 
D)  less than the efficient level of output will be produced because marginal revenue exceeds marginal cost.

Question 10

If advertising were used to strengthen brand loyalty,you would expect:

Accepted Answer

A)  demand for the product to become more elastic. 
B)  consumers to become less sensitive to price differences among similar goods. 
C)  firms to lower price in order to increase revenue. 
D)  that consumer demand for related products would be unaffected. 
A)  demand for the product to become more elastic. 
B)  consumers to become less sensitive to price differences among similar goods. 
C)  firms to lower price in order to increase revenue. 
D)  that consumer demand for related products would be unaffected.

Question 11

Exhibit 14-1   Refer to Exhibit 14-1.Based on the graph,what is the maximum amount of profit this firm could earn?

Accepted Answer

A)  $150 
B)  $210 
C)  $245 
D)  $315 
A)  $150 
B)  $210 
C)  $245 
D)  $315

Question 12

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

Accepted Answer

A)  marginal cost exceeds average total cost 
B)  marginal revenue = marginal cost 
C)  production in the range of economies of scale 
D)  price greater than marginal revenue 
A)  marginal cost exceeds average total cost 
B)  marginal revenue = marginal cost 
C)  production in the range of economies of scale 
D)  price greater than marginal revenue

Question 13

Monopolistic competition describes a situation where:

Accepted Answer

A)  a few firms produce a standardized product. 
B)  a large number of firms produce differentiated products. 
C)  a few firms produce differentiated products. 
D)  there are substantial barriers to entry. 
A)  a few firms produce a standardized product. 
B)  a large number of firms produce differentiated products. 
C)  a few firms produce differentiated products. 
D)  there are substantial barriers to entry.

Question 14

Which of the following is characteristic of a monopolistic competitor?

Accepted Answer

A)  a standardized product 
B)  the ability to influence price 
C)  allocative efficiency 
D)  a horizontal firm demand curve 
A)  a standardized product 
B)  the ability to influence price 
C)  allocative efficiency 
D)  a horizontal firm demand curve

Question 15

Extensive advertising will always lead to an increase in average total cost for the firm.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves.   Refer to Exhibit 14-5.If the firm produces the profit-maximizing (or loss-minimizing)level of output,it will produce:

Accepted Answer

A)  100 sweaters each week. 
B)  85 sweaters each week. 
C)  70 sweaters each week. 
D)  60 sweaters each week. 
A)  100 sweaters each week. 
B)  85 sweaters each week. 
C)  70 sweaters each week. 
D)  60 sweaters each week.

Question 17

When a firm's demand curve is tangent to its average total cost curve:

Accepted Answer

A)  the firm must be operating in a monopolistically competitive market. 
B)  economic profits are zero. 
C)  the firm must be earning economic profits. 
D)  the firm must be incurring economic losses. 
A)  the firm must be operating in a monopolistically competitive market. 
B)  economic profits are zero. 
C)  the firm must be earning economic profits. 
D)  the firm must be incurring economic losses.

Question 18

How might a clothing store differentiate itself from its competitors? List at least three ways.

Accepted Answer

Answers will vary.Possible examples incl

Question 19

Its critics claim that when advertising ____ the elasticity of demand,firms are able to ____.

Accepted Answer

A)  decreases; lower their advertising budget 
B)  increases; become more competitive 
C)  increases; increase their advertising budget 
D)  decreases; charge a larger mark-up over marginal cost 
A)  decreases; lower their advertising budget 
B)  increases; become more competitive 
C)  increases; increase their advertising budget 
D)  decreases; charge a larger mark-up over marginal cost

Question 20

A profit-maximizing,monopolistically competitive firm always operates:

Accepted Answer

A)  at the minimum of average total cost. 
B)  at the point where demand is unit elastic. 
C)  with excess capacity. 
D)  at an economically efficient scale. 
A)  at the minimum of average total cost. 
B)  at the point where demand is unit elastic. 
C)  with excess capacity. 
D)  at an economically efficient scale.

Exam 14: Monopolistic Competition and Product Differentiation

In a monopolistically competitive market:

Which of the following observations is true?

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.In Graph A,the profit-maximizing (loss-minimizing)firm is making a ____,shown by the area ____.

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves. Refer to Exhibit 14-5.Based on the diagram,it follows that:

The restaurant market in San Francisco is probably best categorized as:

If Mary wants to use advertising to reduce the elasticity of demand for her dry cleaning services,she should make sure the advertising:

When firms exit a monopolistically competitive industry:

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

In monopolistically competitive markets in long run equilibrium:

If advertising were used to strengthen brand loyalty,you would expect:

Exhibit 14-1 Refer to Exhibit 14-1.Based on the graph,what is the maximum amount of profit this firm could earn?

Which of the following will not generally be true of a monopolistic competitor operating in the long run?

Monopolistic competition describes a situation where:

Which of the following is characteristic of a monopolistic competitor?

Extensive advertising will always lead to an increase in average total cost for the firm.

Exhibit 14-5 The graph depicts a monopolistically competitive firm's demand,marginal revenue,and cost curves. Refer to Exhibit 14-5.If the firm produces the profit-maximizing (or loss-minimizing)level of output,it will produce:

When a firm's demand curve is tangent to its average total cost curve:

How might a clothing store differentiate itself from its competitors? List at least three ways.

Its critics claim that when advertising ____ the elasticity of demand,firms are able to ____.

A profit-maximizing,monopolistically competitive firm always operates:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

Exhibit 14-2 The following diagram depicts monopolistically competitive firms. Refer to Exhibit 14-2.In Graph A,the profit-maximizing (loss-minimizing)firm is making a ,shown by the area .

Its critics claim that when advertising the elasticity of demand,firms are able to .