Question 1

In monopolistically competitive markets, economic losses

Accepted Answer

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

Question 2

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald's while vacationing abroad is

Accepted Answer

A)  they can't get enough McDonald's food when they are at home. 
B)  they know and trust the quality associated with the McDonald's brand name. 
C)  the food at local restaurants is of inferior quality. 
D)  that Americans, by their nature, are not very adventurous. 
A)  they can't get enough McDonald's food when they are at home. 
B)  they know and trust the quality associated with the McDonald's brand name. 
C)  the food at local restaurants is of inferior quality. 
D)  that Americans, by their nature, are not very adventurous.

Question 3

Edward Chamberlin argued that governments should

Accepted Answer

A)  ban the use of brand names. 
B)  not enforce the trademarks that companies use to identify their products. 
C)  vigorously enforce the trademarks that companies use to identify their products. 
D)  tax companies whose products have brand names in proportion to how much consumers recognize their products. 
A)  ban the use of brand names. 
B)  not enforce the trademarks that companies use to identify their products. 
C)  vigorously enforce the trademarks that companies use to identify their products. 
D)  tax companies whose products have brand names in proportion to how much consumers recognize their products.

Question 4

A firm operating in a monopolistically competitive market can earn economic profits in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 5

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

Accepted Answer

A)  positive profit in the short run and in the long run. 
B)  positive or negative profit in the short run and a zero profit in the long run. 
C)  zero profit in the short run and a positive or negative profit in the long run. 
D)  zero profit in the short run and in the long run. 
A)  positive profit in the short run and in the long run. 
B)  positive or negative profit in the short run and a zero profit in the long run. 
C)  zero profit in the short run and a positive or negative profit in the long run. 
D)  zero profit in the short run and in the long run.

Question 6

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 7

Figure 16-13  
-Refer to Figure 16-13. Use the letters to identify the area of profit for this firm.

Accepted Answer

The answer of Figure 16-13  
-Refer to Figure 16-13....

Question 8

Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 4, how much total consumer surplus would consumers receive in this market?

Accepted Answer

A)  8 
B)  12 
C)  32 
D)  64 
A)  8 
B)  12 
C)  32 
D)  64

Question 9

Television advertisements aired during major sporting events are very expensive. A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

Accepted Answer

A)  enhances the effectiveness of the advertisement. 
B)  reduces people's willingness to purchase advertised products. 
C)  is leaked to discredit the firms that spend so much on advertising. 
D)  reduces the effective staying power of a product. 
A)  enhances the effectiveness of the advertisement. 
B)  reduces people's willingness to purchase advertised products. 
C)  is leaked to discredit the firms that spend so much on advertising. 
D)  reduces the effective staying power of a product.

Question 10

If there are many firms participating in a market, the market is either

Accepted Answer

A)  an oligopoly or monopolistically competitive. 
B)  perfectly competitive or monopolistically competitive. 
C)  an oligopoly or perfectly competitive. 
D)  an oligopoly or a cartel. 
A)  an oligopoly or monopolistically competitive. 
B)  perfectly competitive or monopolistically competitive. 
C)  an oligopoly or perfectly competitive. 
D)  an oligopoly or a cartel.

Question 11

Figure 16-14  
-Refer to Figure 16-14. The difference between the price charged by the monopolistically competitive firm and the price that would be charged if this firm operated in a perfectly competitive market is represented by which line segment?

Accepted Answer

The answer of Figure 16-14  
-Refer to Figure 16-14....

Question 12

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, marginal cost must lie below average total cost.

Accepted Answer

A) True 
 B)False

Question 13

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. When Peter maximizes his profits, how much revenue does he earn per day?

Accepted Answer

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

Question 14

Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

Accepted Answer

A)  rule for maximizing profits 
B)  ability to earn profits in the short run 
C)  entry in the long run 
D)  price exceeds marginal cost 
A)  rule for maximizing profits 
B)  ability to earn profits in the short run 
C)  entry in the long run 
D)  price exceeds marginal cost

Question 15

As firms exit a monopolistically competitive market, profits of remaining firms

Accepted Answer

A)  decline, and product diversity in the market decreases. 
B)  decline, and product diversity in the market increases. 
C)  rise, and product diversity in the market decreases. 
D)  rise, and product diversity in the market increases. 
A)  decline, and product diversity in the market decreases. 
B)  decline, and product diversity in the market increases. 
C)  rise, and product diversity in the market decreases. 
D)  rise, and product diversity in the market increases.

Question 16

Which of the following is not an example of Joel Waldfogel's "Tyranny of the Market"?

Accepted Answer

A)  A daily newspaper tailored to appeal to the majority of readers in an area. 
B)  Nike creating specialized shoes for American Indians' wider feet. 
C)  Pharmaceutical companies spending research and development funds on drugs for common diseases. 
D)  Airlines offering daily direct flights from one large city to another. 
A)  A daily newspaper tailored to appeal to the majority of readers in an area. 
B)  Nike creating specialized shoes for American Indians' wider feet. 
C)  Pharmaceutical companies spending research and development funds on drugs for common diseases. 
D)  Airlines offering daily direct flights from one large city to another.

Question 17

A similarity between monopoly and monopolistic competition is that in both market structures

Accepted Answer

A)  strategic interactions among sellers are important. 
B)  there are a small number of sellers. 
C)  sellers are price makers rather than price takers. 
D)  there are only a few buyers but many sellers. 
A)  strategic interactions among sellers are important. 
B)  there are a small number of sellers. 
C)  sellers are price makers rather than price takers. 
D)  there are only a few buyers but many sellers.

Question 18

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.

Accepted Answer

Business-stealing effect: incumbent firm

Question 19

A firm in a monopolistically competitive market faces a

Accepted Answer

A)  downward­sloping demand curve because the firm's product is different from those offered by other firms. 
B)  downward-sloping demand curve because there are only a few firms in the market. 
C)  horizontal demand curve because there are many firms in the market. 
D)  horizontal demand curve because firms can enter the market without restriction. 
A)  downward­sloping demand curve because the firm's product is different from those offered by other firms. 
B)  downward-sloping demand curve because there are only a few firms in the market. 
C)  horizontal demand curve because there are many firms in the market. 
D)  horizontal demand curve because firms can enter the market without restriction.

Question 20

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

Accepted Answer

A) True 
 B)False

Exam 16: Monopolistic Competition

In monopolistically competitive markets, economic losses

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald's while vacationing abroad is

Edward Chamberlin argued that governments should

A firm operating in a monopolistically competitive market can earn economic profits in

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

Figure 16-13 -Refer to Figure 16-13. Use the letters to identify the area of profit for this firm.

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 4, how much total consumer surplus would consumers receive in this market?

Television advertisements aired during major sporting events are very expensive. A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

If there are many firms participating in a market, the market is either

Figure 16-14 -Refer to Figure 16-14. The difference between the price charged by the monopolistically competitive firm and the price that would be charged if this firm operated in a perfectly competitive market is represented by which line segment?

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, marginal cost must lie below average total cost.

Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

As firms exit a monopolistically competitive market, profits of remaining firms

Which of the following is not an example of Joel Waldfogel's "Tyranny of the Market"?

A similarity between monopoly and monopolistic competition is that in both market structures

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.

A firm in a monopolistically competitive market faces a

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

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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