Question 1

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Accepted Answer

A) True 
 B)False

Question 2

According to the signaling theory of advertising, consumers

Accepted Answer

A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements. 
A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements.

Question 3

Product differentiation always leads to some measure of market power.

Accepted Answer

A) True 
 B)False

Question 4

In a monopolistically competitive market,

Accepted Answer

A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run. 
A)  strategic interactions among the firms are very important. 
B)  the threat of entry by new firms is not an important consideration. 
C)  the attainment of a Nash equilibrium is an important objective. 
D)  firms may enter even though they will earn zero economic profit in the long run.

Question 5

Figure 16-3
This figure depicts a situation in a monopolistically competitive market.  
-Refer to Figure 16-3. At the profit­maximizing level of output, what is this firm's total cost of production?

Accepted Answer

A)  $1,200 
B)  $1,400 
C)  $1,600 
D)  $1,875 
A)  $1,200 
B)  $1,400 
C)  $1,600 
D)  $1,875

Question 6

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

Accepted Answer

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

Question 7

In markets where restrictions on advertising have been used to curtail competition, the U.S. courts have generally

Accepted Answer

A)  referred the matters of advertising restrictions to executive regulators. 
B)  enforced industry-wide agreements to restrict advertising. 
C)  been silent on the effect of explicit advertising restrictions. 
D)  overturned laws that prohibit advertising. 
A)  referred the matters of advertising restrictions to executive regulators. 
B)  enforced industry-wide agreements to restrict advertising. 
C)  been silent on the effect of explicit advertising restrictions. 
D)  overturned laws that prohibit advertising.

Question 8

Figure 16-11  
-Refer to Figure 16-11. If this firm profit-maximizes, how much cost will it incur?

Accepted Answer

The answer of Figure 16-11  
-Refer to Figure 16-11....

Question 9

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

Accepted Answer

A)  the actual quality of the product is irrelevant. 
B)  the content of the advertisement is irrelevant. 
C)  advertising is not in the best interest of society. 
D)  it is irrational for firms to pay famous people large amounts of money to appear in their advertisements. 
A)  the actual quality of the product is irrelevant. 
B)  the content of the advertisement is irrelevant. 
C)  advertising is not in the best interest of society. 
D)  it is irrational for firms to pay famous people large amounts of money to appear in their advertisements.

Question 10

In a monopolistically competitive market, social welfare would be enhanced if

Accepted Answer

A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly. 
A)  price equaled marginal cost. 
B)  government regulation eliminated the product-variety externality. 
C)  the government raised taxes to subsidize firms that price below average total cost. 
D)  there were fewer firms, making the industry closer to an oligopoly.

Question 11

Which of the following statements is correct?

Accepted Answer

A)  In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B)  A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C)  For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D)  All of the above are correct. 
A)  In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B)  A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C)  For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D)  All of the above are correct.

Question 12

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 16-6
Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive.
-Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, existing ice cream shops located in Mayville are likely to experience a

Accepted Answer

A)  business-stealing externality, which harms producers. 
B)  business-stealing externality, which benefits producers. 
C)  product-variety externality, which harms consumers. 
D)  product-variety externality, which benefits consumers. 
A)  business-stealing externality, which harms producers. 
B)  business-stealing externality, which benefits producers. 
C)  product-variety externality, which harms consumers. 
D)  product-variety externality, which benefits consumers.

Question 14

Which of the following conditions distinguishes monopolistic competition from perfect competition?

Accepted Answer

A)  the number of sellers in the market 
B)  the freedom of entry and exit by firms in the market 
C)  the size of firms in the market 
D)  product differentiation 
A)  the number of sellers in the market 
B)  the freedom of entry and exit by firms in the market 
C)  the size of firms in the market 
D)  product differentiation

Question 15

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

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 M?

Accepted Answer

A)  about 96% 
B)  about 52% 
C)  about 40% 
D)  about 22% 
A)  about 96% 
B)  about 52% 
C)  about 40% 
D)  about 22%

Question 17

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

Accepted Answer

A)  firms are more likely to operate at efficient scale. 
B)  there are likely to be too many firms in a monopolistically competitive market. 
C)  market efficiency is likely to be enhanced by the entry of new firms. 
D)  all firms are earning zero economic profit. 
A)  firms are more likely to operate at efficient scale. 
B)  there are likely to be too many firms in a monopolistically competitive market. 
C)  market efficiency is likely to be enhanced by the entry of new firms. 
D)  all firms are earning zero economic profit.

Question 18

A market structure in which there are many firms selling products that are similar but not identical is known as

Accepted Answer

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

Question 19

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. At the profit­maximizing quantity, what is Beatrice's total profit?

Accepted Answer

A)  $43 
B)  $89 
C)  $101 
D)  $144 
A)  $43 
B)  $89 
C)  $101 
D)  $144

Question 20

Scenario 16-4
Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition.
-Refer to Scenario 16-4. As a result of the new restaurant, diners in Boston are likely to experience a

Accepted Answer

A)  product-variety externality, which is a negative externality. 
B)  product-variety externality, which is a positive externality. 
C)  business-stealing externality, which is a negative externality. 
D)  business-stealing externality, which is a positive externality. 
A)  product-variety externality, which is a negative externality. 
B)  product-variety externality, which is a positive externality. 
C)  business-stealing externality, which is a negative externality. 
D)  business-stealing externality, which is a positive externality.

Exam 16: Monopolistic Competition

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

According to the signaling theory of advertising, consumers

Product differentiation always leads to some measure of market power.

In a monopolistically competitive market,

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. At the profit­maximizing level of output, what is this firm's total cost of production?

Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market?

In markets where restrictions on advertising have been used to curtail competition, the U.S. courts have generally

Figure 16-11 -Refer to Figure 16-11. If this firm profit-maximizes, how much cost will it incur?

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

In a monopolistically competitive market, social welfare would be enhanced if

Which of the following statements is correct?

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

Scenario 16-6 Ike's Ice Cream has decided to open a new ice cream parlor in Mayville, MS. The market for ice cream parlors is monopolistically competitive. -Refer to Scenario 16-6. As a result of the new Ike's Ice Cream parlor, existing ice cream shops located in Mayville are likely to experience a

Which of the following conditions distinguishes monopolistic competition from perfect competition?

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.

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 M?

When the loss from a business-stealing externality exceeds the gain from a product-variety externality,

A market structure in which there are many firms selling products that are similar but not identical is known as

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. At the profit­maximizing quantity, what is Beatrice's total profit?

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

Figure 16-3 This figure depicts a situation in a monopolistically competitive market. -Refer to Figure 16-3. At the profitmaximizing level of output, what is this firm's total cost of production?

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. At the profitmaximizing quantity, what is Beatrice's total profit?