Question 1

As long as profits are possible, more firms will enter the market, reducing the profits to each individual firm in a monopolistic competition.

Accepted Answer

A) True 
 B)False

Question 2

Products can be differentiated along many dimensions. Explain.

Accepted Answer

Products can be differentiated

Question 3

Persuasive advertising:

Accepted Answer

A)  is informative. 
B)  is wasteful. 
C)  can create market power for firms through brand differentiation. 
D)  has been shown to do little to increase sales. 
A)  is informative. 
B)  is wasteful. 
C)  can create market power for firms through brand differentiation. 
D)  has been shown to do little to increase sales.

Question 4

In the 1990s, fast food restaurants refused to make special orders-there was no way to "hold the tomatoes." When Burger King branded itself as the place where you could "have it your way" and allowed special orders, it enjoyed an advantage over other fast food restaurants. Until other firms copied it, what was Burger King's position?

Accepted Answer

A)  monopolistic competitive 
B)  cartelized 
C)  perfectly competitive 
D)  monopoly 
A)  monopolistic competitive 
B)  cartelized 
C)  perfectly competitive 
D)  monopoly

Question 5

A monopolistically competitive firm continues to make profits so long as P > AC.

Accepted Answer

A) True 
 B)False

Question 6

Advertising:

Accepted Answer

A)  is about price and quality only. 
B)  is informative only. 
C)  infers that the seller expects the product to make a big splash. 
D)  is only when the seller fears the product will not make a big splash. 
A)  is about price and quality only. 
B)  is informative only. 
C)  infers that the seller expects the product to make a big splash. 
D)  is only when the seller fears the product will not make a big splash.

Question 7

Products can be differentiated only by taste and style.

Accepted Answer

A) True 
 B)False

Question 8

As of 2010, it was more common to see advertisements for the iPad in Silicon Valley than in Berlin.

Accepted Answer

A) True 
 B)False

Question 9

The monopolistic model helps explain both the negative and positive features of advertising.

Accepted Answer

A) True 
 B)False

Question 10

Figure: Monopolistic Competition II   The monopolistically competitive firm in this diagram is in ______ equilibrium and charging a price of ______.

Accepted Answer

A)  long-run; $14 
B)  short-run; $8 
C)  short-run; $11 
D)  long-run; $8 
A)  long-run; $14 
B)  short-run; $8 
C)  short-run; $11 
D)  long-run; $8

Question 11

A monopolistically competitive firm operates where:

Accepted Answer

A)  MR  MC. 
D)  MR + MC = 0. 
A)  MR  MC. 
D)  MR + MC = 0.

Question 12

Advertising is not about trying to change our minds and is only about information.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is/are TRUE?
I. A monopolistic competitive firm sets price > MC.
II. A monopolistic competitive firm sets price = MC.
III. A monopolistic competitive firm operates at MC = MR.

Accepted Answer

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

Question 14

A monopolistic competitive firms charges P = MC.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

As more firms enter a monopolistically competitive market, the individual firm's demand curve:

Accepted Answer

A)  increases, shifts to the right. 
B)  stays the same. 
C)  decreases, shifts to the left. 
D)  It will vary greatly depending on the industry. 
A)  increases, shifts to the right. 
B)  stays the same. 
C)  decreases, shifts to the left. 
D)  It will vary greatly depending on the industry.

Question 17

In 2010, which was the location of more advertisement for the iPad?

Accepted Answer

A)  Charlottesville, Virginia 
B)  Berlin, Germany 
C)  Silicon Valley, California 
D)  These markets were equally saturated with iPad ads. 
A)  Charlottesville, Virginia 
B)  Berlin, Germany 
C)  Silicon Valley, California 
D)  These markets were equally saturated with iPad ads.

Question 18

In a stable, monopolistically competitive market for restaurants there are:

Accepted Answer

A)  zero profits on average, and consumers are indifferent about where they eat. 
B)  zero profits on average, and consumers have strong preferences about where they eat. 
C)  positive profits on average, and consumers are indifferent about where they eat. 
D)  positive profits on average, and consumers have strong preferences about where they eat. 
A)  zero profits on average, and consumers are indifferent about where they eat. 
B)  zero profits on average, and consumers have strong preferences about where they eat. 
C)  positive profits on average, and consumers are indifferent about where they eat. 
D)  positive profits on average, and consumers have strong preferences about where they eat.

Question 19

Monopolistically competitive firms are able to charge:

Accepted Answer

A)  P > MC, eliminating any lost gains from trade. 
B)  P > MC, so output is produced at minimum per unit cost. 
C)  P > MC, causing an inefficiently lower level of output. 
D)  P = MC, maximizing social surplus. 
A)  P > MC, eliminating any lost gains from trade. 
B)  P > MC, so output is produced at minimum per unit cost. 
C)  P > MC, causing an inefficiently lower level of output. 
D)  P = MC, maximizing social surplus.

Question 20

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 this market, in the long run you would expect:

Accepted Answer

A)  both demand and price to stay the same. 
B)  both demand and price to increase as unprofitable firms leave the industry. 
C)  demand to decrease and price to fall to the point that P = AC. 
D)  demand to shift left and decrease price to the point that P = MC. 
A)  both demand and price to stay the same. 
B)  both demand and price to increase as unprofitable firms leave the industry. 
C)  demand to decrease and price to fall to the point that P = AC. 
D)  demand to shift left and decrease price to the point that P = MC.

Exam 17: Monopolistic Competition and Advertising

As long as profits are possible, more firms will enter the market, reducing the profits to each individual firm in a monopolistic competition.

Products can be differentiated along many dimensions. Explain.

Persuasive advertising:

A monopolistically competitive firm continues to make profits so long as P > AC.

Advertising:

Products can be differentiated only by taste and style.

As of 2010, it was more common to see advertisements for the iPad in Silicon Valley than in Berlin.

The monopolistic model helps explain both the negative and positive features of advertising.

Figure: Monopolistic Competition II The monopolistically competitive firm in this diagram is in ______ equilibrium and charging a price of ______.

A monopolistically competitive firm operates where:

Advertising is not about trying to change our minds and is only about information.

Which of the following is/are TRUE? I. A monopolistic competitive firm sets price > MC. II. A monopolistic competitive firm sets price = MC. III. A monopolistic competitive firm operates at MC = MR.

A monopolistic competitive firms charges P = MC.

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

As more firms enter a monopolistically competitive market, the individual firm's demand curve:

In 2010, which was the location of more advertisement for the iPad?

In a stable, monopolistically competitive market for restaurants there are:

Monopolistically competitive firms are able to charge:

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 this market, in the long run you would expect:

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

Figure: Monopolistic Competition II The monopolistically competitive firm in this diagram is in equilibrium and charging a price of .