Question 1

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

Accepted Answer

A)  marginal revenue will equal average total cost. 
B)  price will exceed marginal cost. 
C)  marginal cost will exceed average revenue. 
D)  average variable cost will be declining. 
A)  marginal revenue will equal average total cost. 
B)  price will exceed marginal cost. 
C)  marginal cost will exceed average revenue. 
D)  average variable cost will be declining.

Question 2

In the long run, a profit-maximizing firm in a monopolistically competitive market operates at

Accepted Answer

A)  efficient scale. 
B)  a level of output at which average total cost is rising. 
C)  a level of output at which average total cost is falling. 
D)  the level of output at which total revenue is maximized. 
A)  efficient scale. 
B)  a level of output at which average total cost is rising. 
C)  a level of output at which average total cost is falling. 
D)  the level of output at which total revenue is maximized.

Question 3

Figure 16-7  
-Refer to Figure 16-7. Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

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 4

Free entry eliminates long-run profits for firms in competitive and monopolistic industries.

Accepted Answer

A) True 
 B)False

Question 5

Under which of the following market structures would the highest output of a particular good be produced?

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly 
A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly

Question 6

Figure 16-7  
-Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d), it would

Accepted Answer

A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity. 
A)  not be maximizing its profit. 
B)  be minimizing its losses. 
C)  be losing market share to other firms in the market. 
D)  be operating at excess capacity.

Question 7

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves.
(ii) they both charge a price that exceeds marginal cost.
(iii) free entry and exit determines the long-run equilibrium.

Accepted Answer

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

Question 8

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Accepted Answer

A)  the firm must be earning a positive economic profit. 
B)  the firm may be incurring economic losses 
C)  there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. 
D)  new firms will enter the market in the long run. 
A)  the firm must be earning a positive economic profit. 
B)  the firm may be incurring economic losses 
C)  there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. 
D)  new firms will enter the market in the long run.

Question 9

Table 16-3
The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries.
  
-Refer to Table 16-3. What is the concentration ratio for Industry B?

Accepted Answer

A)  approximately 46% 
B)  approximately 54% 
C)  approximately 57% 
D)  approximately 61% 
A)  approximately 46% 
B)  approximately 54% 
C)  approximately 57% 
D)  approximately 61%

Question 10

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

Accepted Answer

The answer of For the economy as a whole, about...

Question 11

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Accepted Answer

Some people argue that celebrity endorse

Question 12

In the long run, a firm in a perfectly competitive market operates

Accepted Answer

A)  at its efficient scale, and a monopolistically competitive firm operates at its efficient scale. 
B)  at its efficient scale, and a monopolistically competitive firm operates with excess capacity. 
C)  with excess capacity, and a monopolistically competitive firm operates with excess capacity. 
D)  with excess capacity, and a monopolistically competitive firm operates at its efficient scale. 
A)  at its efficient scale, and a monopolistically competitive firm operates at its efficient scale. 
B)  at its efficient scale, and a monopolistically competitive firm operates with excess capacity. 
C)  with excess capacity, and a monopolistically competitive firm operates with excess capacity. 
D)  with excess capacity, and a monopolistically competitive firm operates at its efficient scale.

Question 13

Monopolistically competitive markets may be socially inefficient because

Accepted Answer

A)  most firms produce inferior products. 
B)  government programs cannot effectively regulate price. 
C)  firms earn zero economic profit. 
D)  the market may have too much or too little entry by new firms. 
A)  most firms produce inferior products. 
B)  government programs cannot effectively regulate price. 
C)  firms earn zero economic profit. 
D)  the market may have too much or too little entry by new firms.

Question 14

Figure 16-4  
-Refer to Figure 16-4. Which of the following will occur in the long run in this industry?

Accepted Answer

A)  Firms will exit this industry. 
B)  Firms will enter this industry. 
C)  This firm will continue to earn positive economic profits. 
D)  This firm will incur losses. 
A)  Firms will exit this industry. 
B)  Firms will enter this industry. 
C)  This firm will continue to earn positive economic profits. 
D)  This firm will incur losses.

Question 15

The LookGood BePopular (LGBP) Clothing Company embarked on a new advertising campaign in which a group of young beautiful people are having fun eating out at a restaurant wearing the company's clothes. Critics of advertising argue that this advertisement

Accepted Answer

A)  causes demand for LGBP Clothing to be less elastic. 
B)  is more effective than other forms of advertisement because of its content. 
C)  will cause the market to be more competitive. 
D)  Both a and b are correct. 
A)  causes demand for LGBP Clothing to be less elastic. 
B)  is more effective than other forms of advertisement because of its content. 
C)  will cause the market to be more competitive. 
D)  Both a and b are correct.

Question 16

Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe'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 Joe'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 Joe's is doing the best it can. 
D)  increase and average total costs to decrease.

Question 17

If a monopolistically competitive firm can increase its level of production and lower its average total cost of production at the same time then

Accepted Answer

A)  the firm has a product-variety opportunity. 
B)  the firm has excess capacity. 
C)  the firm has a business-stealing opportunity. 
D)  the firm is producing a quantity of output higher than its efficient scale of production. 
A)  the firm has a product-variety opportunity. 
B)  the firm has excess capacity. 
C)  the firm has a business-stealing opportunity. 
D)  the firm is producing a quantity of output higher than its efficient scale of production.

Question 18

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

A)  an increase in demand for each firm 
B)  a decrease in demand for each firm 
C)  a downward shift in the marginal cost curve for each firm 
D)  an upward shift in the marginal cost curve for each firm 
A)  an increase in demand for each firm 
B)  a decrease in demand for each firm 
C)  a downward shift in the marginal cost curve for each firm 
D)  an upward shift in the marginal cost curve for each firm

Question 19

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

Accepted Answer

A)  see their profits increase. 
B)  break even. 
C)  lose money. 
D)  not really be affected by the law. 
A)  see their profits increase. 
B)  break even. 
C)  lose money. 
D)  not really be affected by the law.

Question 20

Under which of the following market structures would consumers likely receive the most product variety?

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly 
A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly

Exam 16: Monopolistic Competition

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

In the long run, a profit-maximizing firm in a monopolistically competitive market operates at

Figure 16-7 -Refer to Figure 16-7. Which of the graphs depicts the situation for a profit-maximizing firm in a monopolistically competitive market?

Free entry eliminates long-run profits for firms in competitive and monopolistic industries.

Under which of the following market structures would the highest output of a particular good be produced?

Figure 16-7 -Refer to Figure 16-7. If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel (d), it would

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium.

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry B?

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

In the long run, a firm in a perfectly competitive market operates

Monopolistically competitive markets may be socially inefficient because

Figure 16-4 -Refer to Figure 16-4. Which of the following will occur in the long run in this industry?

The LookGood BePopular (LGBP) Clothing Company embarked on a new advertising campaign in which a group of young beautiful people are having fun eating out at a restaurant wearing the company's clothes. Critics of advertising argue that this advertisement

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

If a monopolistically competitive firm can increase its level of production and lower its average total cost of production at the same time then

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would

Under which of the following market structures would consumers likely receive the most product variety?

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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