Question 1

If a monopolistically competitive firm raises prices, it will:

Accepted Answer

A)  sell no output. 
B)  continue to sell the same amount of output. 
C)  go out of business. 
D)  sell less output. 
A)  sell no output. 
B)  continue to sell the same amount of output. 
C)  go out of business. 
D)  sell less output.

Question 2

Informative advertising:

Accepted Answer

A)  degrades the competitive process by increasing the costs of firms. 
B)  degrades the competitive process by confusing the consumer with information about prices and new products. 
C)  improves the competitive process by educating the consumer about prices and new products. 
D)  improves the competitive process by making all products appear to be the same. 
A)  degrades the competitive process by increasing the costs of firms. 
B)  degrades the competitive process by confusing the consumer with information about prices and new products. 
C)  improves the competitive process by educating the consumer about prices and new products. 
D)  improves the competitive process by making all products appear to be the same.

Question 3

What is the main difference between a perfectly competitive industry and a monopolistically competitive firm?

Accepted Answer

A)  the number of firms in the market 
B)  product differentiation 
C)  zero economic profit 
D)  no barriers to entry 
A)  the number of firms in the market 
B)  product differentiation 
C)  zero economic profit 
D)  no barriers to entry

Question 4

Which of the following is the best example of a monopolistic competitive market?

Accepted Answer

A)  diamonds 
B)  produce 
C)  restaurants 
D)  milk 
A)  diamonds 
B)  produce 
C)  restaurants 
D)  milk

Question 5

Advertising can help finance many useful goods and services.

Accepted Answer

A) True 
 B)False

Question 6

Monopolistic competition in a market is characterized by:

Accepted Answer

A)  many firms, downward-sloping demand curves, and zero economic profit in the long run. 
B)  several dominant firms, perfectly elastic demand curves, and above-normal profits. 
C)  many firms, perfectly elastic demand curves, and zero economic profit in the long run. 
D)  several firms, inelastic demand curves, and long-run monopoly profit. 
A)  many firms, downward-sloping demand curves, and zero economic profit in the long run. 
B)  several dominant firms, perfectly elastic demand curves, and above-normal profits. 
C)  many firms, perfectly elastic demand curves, and zero economic profit in the long run. 
D)  several firms, inelastic demand curves, and long-run monopoly profit.

Question 7

A monopolistic competitive firm is able to charge P > MC because:

Accepted Answer

A)  they clearly have a superior product than their competitors. 
B)  of product differentiation, some people will prefer their product. 
C)  of high barriers to entry into the industry. 
D)  monopolistic competitive firms must not set prices above P = MC. 
A)  they clearly have a superior product than their competitors. 
B)  of product differentiation, some people will prefer their product. 
C)  of high barriers to entry into the industry. 
D)  monopolistic competitive firms must not set prices above P = MC.

Question 8

Bottled water is produced in a ______ manner.

Accepted Answer

A)  oligopolistic 
B)  monopolistically competitive 
C)  perfectly competitive 
D)  monopolistic 
A)  oligopolistic 
B)  monopolistically competitive 
C)  perfectly competitive 
D)  monopolistic

Question 9

Why do supermarkets send out newspaper supplements?

Accepted Answer

Supermarkets send out supplements boasti

Question 10

Advertising, whether informative or persuasive, can help promote many useful goods and services.

Accepted Answer

A) True 
 B)False

Question 11

Monopolistic competition combines features of:

Accepted Answer

A)  oligopolies and monopolies. 
B)  perfect competition and monopolies. 
C)  elastic and inelastic goods. 
D)  shortages and surpluses. 
A)  oligopolies and monopolies. 
B)  perfect competition and monopolies. 
C)  elastic and inelastic goods. 
D)  shortages and surpluses.

Question 12

Use the following to answer questions:
Figure: Monopolistic Competition  
-(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to:

Accepted Answer

A)  stay the same. 
B)  increase as unprofitable firms leave the industry. 
C)  decrease to the point that P = AC. 
D)  decrease to the point that P = MC. 
A)  stay the same. 
B)  increase as unprofitable firms leave the industry. 
C)  decrease to the point that P = AC. 
D)  decrease to the point that P = MC.

Question 13

Monopolistic competitive firms do not produce at the minimum of their average cost curves.

Accepted Answer

A) True 
 B)False

Question 14

If a firm has an average product that is not much better than what other firms produce they may wish to focus their advertising on:

Accepted Answer

A)  quality. 
B)  price. 
C)  deceiving customers. 
D)  product information. 
A)  quality. 
B)  price. 
C)  deceiving customers. 
D)  product information.

Question 15

Advertising can help people enjoy more products.

Accepted Answer

A) True 
 B)False

Question 16

Monopolistic competition is a market that has:

Accepted Answer

A)  many sellers, free entry, and product differentiation. 
B)  few sellers, free entry, and product differentiation. 
C)  many sellers, high barriers to entry, and product differentiation. 
D)  many sellers, free entry, and identical products. 
A)  many sellers, free entry, and product differentiation. 
B)  few sellers, free entry, and product differentiation. 
C)  many sellers, high barriers to entry, and product differentiation. 
D)  many sellers, free entry, and identical products.

Question 17

In the long run, monopolistic competitive firms will end up producing at a price equal to that of competitive markets.

Accepted Answer

A) True 
 B)False

Question 18

Firms in monopolistic competitive industries:
I. sell their products at a higher price than if their industry were strictly competitive.
II. sell their products at the same price as if they were in a monopoly market.
III. have a high incentive to innovate with new products and better quality.

Accepted Answer

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

Question 19

Under steady state monopolistic competition firms face ______ demand and earn ______ economic profits on average.

Accepted Answer

A)  downward-sloping; zero 
B)  downward-sloping; positive 
C)  perfectly-elastic; zero 
D)  perfectly-elastic; positive 
A)  downward-sloping; zero 
B)  downward-sloping; positive 
C)  perfectly-elastic; zero 
D)  perfectly-elastic; positive

Question 20

Monopolistically competitive firms face a downward-sloping demand curve.

Accepted Answer

A) True 
 B)False

Exam 17: Monopolistic Competition and Advertising

If a monopolistically competitive firm raises prices, it will:

Informative advertising:

What is the main difference between a perfectly competitive industry and a monopolistically competitive firm?

Which of the following is the best example of a monopolistic competitive market?

Advertising can help finance many useful goods and services.

Monopolistic competition in a market is characterized by:

A monopolistic competitive firm is able to charge P > MC because:

Bottled water is produced in a ______ manner.

Why do supermarkets send out newspaper supplements?

Advertising, whether informative or persuasive, can help promote many useful goods and services.

Monopolistic competition combines features of:

Use the following to answer questions: Figure: Monopolistic Competition -(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to:

Monopolistic competitive firms do not produce at the minimum of their average cost curves.

If a firm has an average product that is not much better than what other firms produce they may wish to focus their advertising on:

Advertising can help people enjoy more products.

Monopolistic competition is a market that has:

In the long run, monopolistic competitive firms will end up producing at a price equal to that of competitive markets.

Firms in monopolistic competitive industries: I. sell their products at a higher price than if their industry were strictly competitive. II. sell their products at the same price as if they were in a monopoly market. III. have a high incentive to innovate with new products and better quality.

Under steady state monopolistic competition firms face ______ demand and earn ______ economic profits on average.

Monopolistically competitive firms face a downward-sloping demand curve.

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

Under steady state monopolistic competition firms face demand and earn economic profits on average.