Question 1

An example of a monopolistic competitive industry is:

Accepted Answer

A)  produce. 
B)  white T-shirts. 
C)  sodas. 
D)  sugar. 
A)  produce. 
B)  white T-shirts. 
C)  sodas. 
D)  sugar. C

Question 2

Why does a monopolistic competitive industry experience zero economic profits in the long run?

Accepted Answer

When there are profits to be had, in the short run, new firms will enter the market. This will decrease the demand to the individual firm and reduce the profits until there are zero economic profits when the firm is forced to price its product at the average cost.

Question 3

When P > MC, output is at the socially efficient level in a monopolistically competitive firm.

Accepted Answer

A) True 
 B)False  False

Question 4

Monopolistic competition is similar to that of monopoly, but it allows for free entry and exit of competing firms.

Accepted Answer

A) True 
 B)False

Question 5

Firms that are monopolistically competitive face a demand curve that is identical to one of a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 6

In what ways is the market for books a monopoly?

Accepted Answer

Anyone can sell a mystery, but

Question 7

In the long run, a monopolistically competitive firm will operate where P = AC and will no longer have economic profits.

Accepted Answer

A) True 
 B)False

Question 8

Much advertising is about telling people what is out there.

Accepted Answer

A) True 
 B)False

Question 9

In a monopolistically competitive market, new firms will enter the market as long as:

Accepted Answer

A) P > AC. B) P = AC. C) P < AC. D) P = MC. A) P > AC. B) P = AC. C) P < AC. D) P = MC.

Question 10

Firms that expect their products to be successful:

Accepted Answer

A)  have more of an incentive to advertise. 
B)  have less of an incentive to advertise. 
C)  will only participate in price advertising. 
D)  can better signal the quality of their product if they do not advertise. 
A)  have more of an incentive to advertise. 
B)  have less of an incentive to advertise. 
C)  will only participate in price advertising. 
D)  can better signal the quality of their product if they do not advertise.

Question 11

If consumers observe a lot of advertising for a product, they can infer that the producer:

Accepted Answer

A)  expects the product to be successful. 
B)  thinks the product is of poor quality. 
C)  does not want his brand name associated with that product. 
D)  needs to rely on misinformation to get people to try the product. 
A)  expects the product to be successful. 
B)  thinks the product is of poor quality. 
C)  does not want his brand name associated with that product. 
D)  needs to rely on misinformation to get people to try the product.

Question 12

Sometimes advertising does not appear to be about price, quality, or availability.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is/are TRUE?
I. Advertising embodies both information and persuasion.
II. Perfectly competitive firms and monopolistically competitive firms both advertise.
III. Monopolies and monopolistically competitive firms both advertise.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I II and III 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I II and III

Question 14

Both perfectly competitive markets and monopolistically competitive markets feature product differentiation.

Accepted Answer

A) True 
 B)False

Question 15

Advertising designed to link fond lifetime memories with the use of a product is a form of:

Accepted Answer

A)  informative advertising that is designed to reduce market power. 
B)  informative advertising that is designed to increase market power. 
C)  differentiated advertising that tries to reduce consumer surplus. 
D)  persuasive advertising that may actually increase consumer well-being. 
A)  informative advertising that is designed to reduce market power. 
B)  informative advertising that is designed to increase market power. 
C)  differentiated advertising that tries to reduce consumer surplus. 
D)  persuasive advertising that may actually increase consumer well-being.

Question 16

In No Logo, Naomi Klein criticizes companies that prioritize the brand name over quality of their product. What function of advertising is Klein concerned about?

Accepted Answer

A)  informative 
B)  signaling 
C)  persuasion 
D)  informative, signaling, and part of the product 
A)  informative 
B)  signaling 
C)  persuasion 
D)  informative, signaling, and part of the product

Question 17

A monopolistic competitive firm produces a product like oil that has perfect substitutes.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is NOT an example of product differentiation?

Accepted Answer

A)  Shell versus Chevron 
B)  Coca-Cola versus Pepsi 
C)  Levi's versus American Eagle 
D)  They are all examples of product differentiation. 
A)  Shell versus Chevron 
B)  Coca-Cola versus Pepsi 
C)  Levi's versus American Eagle 
D)  They are all examples of product differentiation.

Question 19

When does a monopolistic competitive industry not experience entrants into the market?

Accepted Answer

When there are no lo

Question 20

Advertising does not promote messages of quality.

Accepted Answer

A) True 
 B)False

Exam 17: Monopolistic Competition and Advertising

An example of a monopolistic competitive industry is:

Why does a monopolistic competitive industry experience zero economic profits in the long run?

When P > MC, output is at the socially efficient level in a monopolistically competitive firm.

Monopolistic competition is similar to that of monopoly, but it allows for free entry and exit of competing firms.

Firms that are monopolistically competitive face a demand curve that is identical to one of a perfectly competitive firm.

In what ways is the market for books a monopoly?

In the long run, a monopolistically competitive firm will operate where P = AC and will no longer have economic profits.

Much advertising is about telling people what is out there.

In a monopolistically competitive market, new firms will enter the market as long as:

Firms that expect their products to be successful:

If consumers observe a lot of advertising for a product, they can infer that the producer:

Sometimes advertising does not appear to be about price, quality, or availability.

Which of the following is/are TRUE? I. Advertising embodies both information and persuasion. II. Perfectly competitive firms and monopolistically competitive firms both advertise. III. Monopolies and monopolistically competitive firms both advertise.

Both perfectly competitive markets and monopolistically competitive markets feature product differentiation.

Advertising designed to link fond lifetime memories with the use of a product is a form of:

In No Logo, Naomi Klein criticizes companies that prioritize the brand name over quality of their product. What function of advertising is Klein concerned about?

A monopolistic competitive firm produces a product like oil that has perfect substitutes.

Which of the following is NOT an example of product differentiation?

When does a monopolistic competitive industry not experience entrants into the market?

Advertising does not promote messages of quality.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters