Question 1

States allowing firms in certain industries to advertise prices, a form of ______, has been found to ______.

Accepted Answer

A)  signaling; decrease prices 
B)  informative advertising; increase prices 
C)  informative advertising; decrease prices 
D)  signaling; increase prices 
A)  signaling; decrease prices 
B)  informative advertising; increase prices 
C)  informative advertising; decrease prices 
D)  signaling; increase prices

Question 2

Informative advertising is about price, quality, and/or availability.

Accepted Answer

A) True 
 B)False

Question 3

Is persuasion through advertising always a good or a bad thing?

Accepted Answer

Persuasion can encourage taste

Question 4

The behavior of firms in monopolistic competition is similar to that in a monopoly, but monopolistic competition allows for entry and exit of competing firms.

Accepted Answer

A) True 
 B)False

Question 5

What is an advantage of monopolistic competitive firms not producing at the minimum of the AC?

Accepted Answer

There will remain incentives to innovate

Question 6

A market with many firms, a differentiated product, and little to no barriers to entry is a _____ market.

Accepted Answer

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

Question 7

In what ways is the market for books competitive?

Accepted Answer

There are many choic

Question 8

A monopolistically competitive firm produces where demand intersects with average costs.

Accepted Answer

A) True 
 B)False

Question 9

Monopolistic competition is a very common industry structure. Firms in this industry face downward-sloping demand curves, but they only earn normal profits in the long run because potential firms can easily enter the industry.

Accepted Answer

A) True 
 B)False

Question 10

Consumers benefit from advertising:

Accepted Answer

A)  only when they gain information. 
B)  if the advertising is not persuasive. 
C)  because it leads to lower prices for some products. 
D)  only when the advertising is being used as a signal. 
A)  only when they gain information. 
B)  if the advertising is not persuasive. 
C)  because it leads to lower prices for some products. 
D)  only when the advertising is being used as a signal.

Question 11

Which of the following is/are TRUE regarding monopolistic competition?
I. few sellers
II. free entry
III. product differentiation

Accepted Answer

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

Question 12

Which of the following is NOT subsidized through advertising?

Accepted Answer

A)  Google searches 
B)  cable TV 
C)  Apple iPhones 
D)  The Wall Street Journal 
A)  Google searches 
B)  cable TV 
C)  Apple iPhones 
D)  The Wall Street Journal

Question 13

Price advertising typically:

Accepted Answer

A)  raises prices for consumers, as the cost of advertising is simply passed off to consumers. 
B)  raises prices and lowers output for consumers. 
C)  is wasteful advertising. 
D)  lowers prices and increases consumer welfare. 
A)  raises prices for consumers, as the cost of advertising is simply passed off to consumers. 
B)  raises prices and lowers output for consumers. 
C)  is wasteful advertising. 
D)  lowers prices and increases consumer welfare.

Question 14

Most radio stations broadcast their programming at no cost to the consumer (listener). How can they do this? What role does advertising play? Would radio stations be more profitable if they could instead charge listeners a subscription fee for listening to their station?

Accepted Answer

Radio stations earn revenue from selling

Question 15

Perfectly competitive firms advertise:

Accepted Answer

A)  somewhat. 
B)  extensively. 
C)  not at all. 
D)  only in their infant stage. 
A)  somewhat. 
B)  extensively. 
C)  not at all. 
D)  only in their infant stage.

Question 16

How do monopolistically competitive firms inform consumers about their products?

Accepted Answer

A)  They rely on word-of-mouth. 
B)  They inform consumers through advertising. 
C)  There is no need to do such. 
D)  Their products are well-known enough to stand on their own. 
A)  They rely on word-of-mouth. 
B)  They inform consumers through advertising. 
C)  There is no need to do such. 
D)  Their products are well-known enough to stand on their own.

Question 17

Which of the following statement(s) is/are TRUE?
I. Because monopolistically competitive firms sell differentiated products, their demand curves are downward sloping.
II. Monopolistically competitive firms earn above-normal profits because of high entry barriers.
III. As firms enter a monopolistically competitive industry, the demand curves of the existing firms shift down and to the left.

Accepted Answer

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

Question 18

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 19

Products can be differentiated along any dimension that people care about, such as taste, style, features, or location.

Accepted Answer

A) True 
 B)False

Question 20

Monopolistically competitive firms create:

Accepted Answer

A)  zero deadweight loss. 
B)  a small deadweight loss. 
C)  a large deadweight loss. 
D)  negative deadweight loss. 
A)  zero deadweight loss. 
B)  a small deadweight loss. 
C)  a large deadweight loss. 
D)  negative deadweight loss.

Exam 17: Monopolistic Competition and Advertising

States allowing firms in certain industries to advertise prices, a form of ______, has been found to ______.

Informative advertising is about price, quality, and/or availability.

Is persuasion through advertising always a good or a bad thing?

The behavior of firms in monopolistic competition is similar to that in a monopoly, but monopolistic competition allows for entry and exit of competing firms.

What is an advantage of monopolistic competitive firms not producing at the minimum of the AC?

A market with many firms, a differentiated product, and little to no barriers to entry is a _____ market.

In what ways is the market for books competitive?

A monopolistically competitive firm produces where demand intersects with average costs.

Monopolistic competition is a very common industry structure. Firms in this industry face downward-sloping demand curves, but they only earn normal profits in the long run because potential firms can easily enter the industry.

Consumers benefit from advertising:

Which of the following is/are TRUE regarding monopolistic competition? I. few sellers II. free entry III. product differentiation

Which of the following is NOT subsidized through advertising?

Price advertising typically:

Most radio stations broadcast their programming at no cost to the consumer (listener). How can they do this? What role does advertising play? Would radio stations be more profitable if they could instead charge listeners a subscription fee for listening to their station?

Perfectly competitive firms advertise:

How do monopolistically competitive firms inform consumers about their products?

Firms that expect their products to be successful:

Products can be differentiated along any dimension that people care about, such as taste, style, features, or location.

Monopolistically competitive firms create:

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

States allowing firms in certain industries to advertise prices, a form of , has been found to .