Question 1

Which of the following statements is not correct?

Accepted Answer

A)  Firms in monopolistic competition and monopoly can earn economic profits in the short run. 
B)  Firms in monopolistic competition and perfect competition produce the welfare-maximizing level of output. 
C)  Monopolistically competitive firms price above marginal cost, whereas competitive firms price at marginal cost. 
D)  Firms wishing to enter a monopolistically competitive market can do so freely, whereas firms wishing to enter a monopoly market will face barriers. 
A)  Firms in monopolistic competition and monopoly can earn economic profits in the short run. 
B)  Firms in monopolistic competition and perfect competition produce the welfare-maximizing level of output. 
C)  Monopolistically competitive firms price above marginal cost, whereas competitive firms price at marginal cost. 
D)  Firms wishing to enter a monopolistically competitive market can do so freely, whereas firms wishing to enter a monopoly market will face barriers.

Question 2

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. Suppose ATC = $36 when Q = 24. Then the

Accepted Answer

A)  firm is in a long-run equilibrium when it produces 24 units of output. 
B)  firm is in a long-run equilibrium when it produces 32 units of output. 
C)  best the firm can do is sustain a loss of $48. 
D)  best the firm can do is earn a profit of $96. 
A)  firm is in a long-run equilibrium when it produces 24 units of output. 
B)  firm is in a long-run equilibrium when it produces 32 units of output. 
C)  best the firm can do is sustain a loss of $48. 
D)  best the firm can do is earn a profit of $96.

Question 3

Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.

Accepted Answer

A)  natural monopoly 
B)  perfectly competition 
C)  monopolistic competition 
D)  monopoly 
A)  natural monopoly 
B)  perfectly competition 
C)  monopolistic competition 
D)  monopoly

Question 4

A monopolistically competitive market

Accepted Answer

A)  is imperfectly competitive, and all imperfectly competitive markets are monopolistically competitive. 
B)  is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive. 
C)  is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive. 
D)  is not imperfectly competitive. 
A)  is imperfectly competitive, and all imperfectly competitive markets are monopolistically competitive. 
B)  is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive. 
C)  is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive. 
D)  is not imperfectly competitive.

Question 5

Which market structure(s) is(are) imperfectly competitive?

Accepted Answer

oligopoly

Question 6

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. When maximizing profit, what price does Beatrice's charge for a cake?

Accepted Answer

A)  $24 
B)  $30 
C)  $36 
D)  $42 
A)  $24 
B)  $30 
C)  $36 
D)  $42

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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. Suppose YumYum has an opportunity to create a cheaper advertising campaign in newspapers rather than on television for its new product. This campaign will cost $8 million and is expected to result in the same 1.5 million one-time customers. YumYum should

Accepted Answer

A)  invest in the cheaper campaign because they will earn a profit. 
B)  invest in the cheaper campaign because they will signal the high quality of their product. 
C)  not invest in the cheaper campaign because they will incur a loss. 
D)  not invest in the cheaper campaign because their brand name will be negatively affected. 
A)  invest in the cheaper campaign because they will earn a profit. 
B)  invest in the cheaper campaign because they will signal the high quality of their product. 
C)  not invest in the cheaper campaign because they will incur a loss. 
D)  not invest in the cheaper campaign because their brand name will be negatively affected.

Question 9

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

Accepted Answer

A)  the quality of products sold in the market always increases. 
B)  customers are less likely to be informed about other characteristics of the product. 
C)  new firms are discouraged from entering the market. 
D)  each firm has less market power. 
A)  the quality of products sold in the market always increases. 
B)  customers are less likely to be informed about other characteristics of the product. 
C)  new firms are discouraged from entering the market. 
D)  each firm has less market power.

Question 10

Figure 16-4  
-Refer to Figure 16-4. What price will the monopolistically competitive firm charge in this market?

Accepted Answer

A)  $400 
B)  $600 
C)  $700 
D)  $800 
A)  $400 
B)  $600 
C)  $700 
D)  $800

Question 11

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because

Accepted Answer

A)  there are many other sellers in the market. 
B)  there are very few other sellers in the market. 
C)  the firm's product is different from those offered by other firms in the market. 
D)  the firm faces the threat of entry into the market by new firms. 
A)  there are many other sellers in the market. 
B)  there are very few other sellers in the market. 
C)  the firm's product is different from those offered by other firms in the market. 
D)  the firm faces the threat of entry into the market by new firms.

Question 12

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Accepted Answer

A)  are price takers while competitive firms are not. 
B)  can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. 
C)  sell completely unrelated products while competitive firms do not. 
D)  sell their product at a price equal to marginal cost while competitive firms do not. 
A)  are price takers while competitive firms are not. 
B)  can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. 
C)  sell completely unrelated products while competitive firms do not. 
D)  sell their product at a price equal to marginal cost while competitive firms do not.

Question 13

Due to free entry and exit in monopolistic competition, in the long run price must be equal to

Accepted Answer

The answer of Due to free entry and exit in...

Question 14

In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.

Accepted Answer

In the case of the examples given, deman

Question 15

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. If Bertollini decides to advertise its product it can expect to

Accepted Answer

A)  earn a profit of $162 million per year. 
B)  earn a profit of $147 million per year. 
C)  earn a profit of $114 million per year. 
D)  earn a profit of $48 million per year. 
A)  earn a profit of $162 million per year. 
B)  earn a profit of $147 million per year. 
C)  earn a profit of $114 million per year. 
D)  earn a profit of $48 million per year.

Question 16

Describe the shape of the monopolistically competitive firm's demand curve.

Accepted Answer

The answer of Describe the shape of the monopolistically competitive...

Question 17

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 18

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 19

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

Accepted Answer

A)  with its minimum at the point (Q = 24, P = $36). 
B)  with its minimum at the point (Q = 24, P = $24). 
C)  tangent to the demand curve at the point (Q = 24, P = $36). 
D)  tangent to the demand curve at the point (Q = 32, P = $32). 
A)  with its minimum at the point (Q = 24, P = $36). 
B)  with its minimum at the point (Q = 24, P = $24). 
C)  tangent to the demand curve at the point (Q = 24, P = $36). 
D)  tangent to the demand curve at the point (Q = 32, P = $32).

Question 20

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

Accepted Answer

@#IMG-DLM& Competitive firms do not face downward-

Which of the following statements is not correct?

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose ATC = $36 when Q = 24. Then the

Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.

A monopolistically competitive market

Which market structure(s) is(are) imperfectly competitive?

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. When maximizing profit, what price does Beatrice's charge for a cake?

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

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

Figure 16-4 -Refer to Figure 16-4. What price will the monopolistically competitive firm charge in this market?

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Due to free entry and exit in monopolistic competition, in the long run price must be equal to

Describe the shape of the monopolistically competitive firm's demand curve.

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

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

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

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

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Exam 16: Monopolistic Competition

Which of the following statements is not correct?

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose ATC = $36 when Q = 24. Then the

Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.

A monopolistically competitive market

Which market structure(s) is(are) imperfectly competitive?

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. When maximizing profit, what price does Beatrice's charge for a cake?

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

When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that

Figure 16-4 -Refer to Figure 16-4. What price will the monopolistically competitive firm charge in this market?

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

Due to free entry and exit in monopolistic competition, in the long run price must be equal to

Describe the shape of the monopolistically competitive firm's demand curve.

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

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

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium. You would draw the ATC curve

Use a graph to demonstrate why a profit-maximizing monopolistically competitive firm must operate at excess capacity. Explain why a perfectly competitive firm is not subject to the same constraint.

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