Question 1

In monopolistically competitive markets, positive economic profits

Accepted Answer

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

Question 2

The two types of imperfectly competitive markets are

Accepted Answer

A)  monopoly and monopolistic competition. 
B)  monopoly and oligopoly. 
C)  monopolistic competition and oligopoly. 
D)  monopolistic competition and cartels. 
A)  monopoly and monopolistic competition. 
B)  monopoly and oligopoly. 
C)  monopolistic competition and oligopoly. 
D)  monopolistic competition and cartels.

Question 3

Defenders of advertising

Accepted Answer

A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct. 
A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct.

Question 4

Figure 16-5  
-Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

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 5

Critics of advertising argue that in some markets advertising may

Accepted Answer

A)  attract products of lower quality into the market. 
B)  attract less informed buyers into the market. 
C)  decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. 
D)  enhance competition in markets to an unnecessary degree. 
A)  attract products of lower quality into the market. 
B)  attract less informed buyers into the market. 
C)  decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. 
D)  enhance competition in markets to an unnecessary degree.

Question 6

Which of the following is an example of a monopolistically competitive industry?

Accepted Answer

A)  computer operating systems 
B)  tennis balls 
C)  movies 
D)  cable television 
A)  computer operating systems 
B)  tennis balls 
C)  movies 
D)  cable television

Question 7

Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product 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 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini'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, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units.
-Refer to Scenario 16-7. Which of the following is most likely?

Accepted Answer

A)  Both YumYum and Bertollini will advertise. 
B)  Neither YumYum nor Bertollini will advertise. 
C)  YumYum will advertise, but Bertollini will not advertise. 
D)  Bertollini will advertise, but YumYum will not advertise. 
A)  Both YumYum and Bertollini will advertise. 
B)  Neither YumYum nor Bertollini will advertise. 
C)  YumYum will advertise, but Bertollini will not advertise. 
D)  Bertollini will advertise, but YumYum will not advertise.

Question 8

The entry of new firms into a monopolistically competitive market is accompanied by

Accepted Answer

A)  both positive and negative externalities. 
B)  only positive externalities. 
C)  only negative externalities. 
D)  only private profit opportunities (no externalities). 
A)  both positive and negative externalities. 
B)  only positive externalities. 
C)  only negative externalities. 
D)  only private profit opportunities (no externalities).

Question 9

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)
  
-Refer to Scenario 16-3. How many ice cream cones should Peter sell in one day to maximize his profits?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Question 10

The product-variety externality arises in monopolistically competitive markets because

Accepted Answer

A)  firms produce with excess capacity. 
B)  firms try to differentiate their products. 
C)  firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D)  entry and exit is restricted. 
A)  firms produce with excess capacity. 
B)  firms try to differentiate their products. 
C)  firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D)  entry and exit is restricted.

Question 11

A monopolistically competitive firm has the following cost structure:   The firm faces the following demand curve:
  If the government forces this firm to produce at its efficient scale, it will

Accepted Answer

A)  produce 3 units and make $9. 
B)  produce 4 units and make $6. 
C)  produce 5 units and lose $5. 
D)  produce 7 units and lose $49. 
A)  produce 3 units and make $9. 
B)  produce 4 units and make $6. 
C)  produce 5 units and lose $5. 
D)  produce 7 units and lose $49.

Question 12

Monopolistic competition is an

Accepted Answer

A)  efficient market structure because long-run profits are zero. 
B)  efficient market structure because each firm produces at its efficient scale. 
C)  inefficient market structure because there is deadweight loss. 
D)  Both a and b are correct. 
A)  efficient market structure because long-run profits are zero. 
B)  efficient market structure because each firm produces at its efficient scale. 
C)  inefficient market structure because there is deadweight loss. 
D)  Both a and b are correct.

Question 13

Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's.
  
-Refer to Table 16-6. What is the profit­maximizing output for Beatrice's Birthday Cakes?

Accepted Answer

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

Question 14

Critics of advertising argue that advertising

Accepted Answer

A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers. 
A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers.

Question 15

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 16

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

Accepted Answer

A)  firms would respond by lowering their costs. 
B)  firms would require a subsidy to stay in business 
C)  new firms that enter the market would operate at efficient scale. 
D)  the most efficient firms would not be affected. 
A)  firms would respond by lowering their costs. 
B)  firms would require a subsidy to stay in business 
C)  new firms that enter the market would operate at efficient scale. 
D)  the most efficient firms would not be affected.

Question 17

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 18

Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20.
  
-Refer to Table 16-7. If this firm profit maximizes and faces a constant marginal cost of $7, does it have excess capacity? How do you know?

Accepted Answer

Yes, avera

Question 19

Figure 16-10
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-10. As the figure is drawn, the firm is in

Accepted Answer

A)  a short-run equilibrium but it is not in a long-run equilibrium. 
B)  a long-run equilibrium but it is not in a short-run equilibrium. 
C)  a short-run equilibrium as well as a long-run equilibrium. 
D)  neither a short-run equilibrium nor a long-run equilibrium. 
A)  a short-run equilibrium but it is not in a long-run equilibrium. 
B)  a long-run equilibrium but it is not in a short-run equilibrium. 
C)  a short-run equilibrium as well as a long-run equilibrium. 
D)  neither a short-run equilibrium nor a long-run equilibrium.

Question 20

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

Accepted Answer

Advertising provides information to cons

In monopolistically competitive markets, positive economic profits

The two types of imperfectly competitive markets are

Defenders of advertising

Figure 16-5 -Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

Critics of advertising argue that in some markets advertising may

Which of the following is an example of a monopolistically competitive industry?

The entry of new firms into a monopolistically competitive market is accompanied by

The product-variety externality arises in monopolistically competitive markets because

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: If the government forces this firm to produce at its efficient scale, it will

Monopolistic competition is an

Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. What is the profitmaximizing output for Beatrice's Birthday Cakes?

Critics of advertising argue that advertising

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

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

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."

Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. -Refer to Table 16-7. If this firm profit maximizes and faces a constant marginal cost of $7, does it have excess capacity? How do you know?

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. As the figure is drawn, the firm is in

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

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

Filters

Exam 16: Monopolistic Competition

In monopolistically competitive markets, positive economic profits

The two types of imperfectly competitive markets are

Defenders of advertising

Figure 16-5 -Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

Critics of advertising argue that in some markets advertising may

Which of the following is an example of a monopolistically competitive industry?

The entry of new firms into a monopolistically competitive market is accompanied by

The product-variety externality arises in monopolistically competitive markets because

A monopolistically competitive firm has the following cost structure: The firm faces the following demand curve: If the government forces this firm to produce at its efficient scale, it will

Monopolistic competition is an

Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. What is the profit­maximizing output for Beatrice's Birthday Cakes?

Critics of advertising argue that advertising

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

If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,

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."

Table 16-7 A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. -Refer to Table 16-7. If this firm profit maximizes and faces a constant marginal cost of $7, does it have excess capacity? How do you know?

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. As the figure is drawn, the firm is in

Assume the role of a defender of advertising. Describe the characteristics of advertising that enhance the effectiveness of markets and increase the social welfare of society.

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

Filters

Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. What is the profitmaximizing output for Beatrice's Birthday Cakes?