Question 1

All of Jill's friends have been telling Jill that she must see a certain movie but she is not sure that she will like it. The movie is a(n)

Accepted Answer

A)  experience good. 
B)  credence good. 
C)  logo good. 
D)  search good. 
A)  experience good. 
B)  credence good. 
C)  logo good. 
D)  search good.

Question 2

In the short run, a monopolistically competitive firm

Accepted Answer

A)  always earns positive economic profits. 
B)  never earns positive economic profits. 
C)  can earn positive, negative, or zero economic profits. 
D)  always earns positive accounting profits. 
A)  always earns positive economic profits. 
B)  never earns positive economic profits. 
C)  can earn positive, negative, or zero economic profits. 
D)  always earns positive accounting profits.

Question 3

-The short-run profit-maximizing output level for a monopolistically competitive firm is the point at which

Accepted Answer

A)  P = ATC. 
B)  MR = MC. 
C)  MR > P. 
D)  MR > ATC. 
A)  P = ATC. 
B)  MR = MC. 
C)  MR > P. 
D)  MR > ATC.

Question 4

Explain the difference between informational advertising and persuasive advertising. Give an example of a product that would be the subject of each type of advertising and explain why that type of advertising fits the product.

Accepted Answer

Informational advertising explains the f

Question 5

-Refer to the above figure. Economic profits for this firm are

Accepted Answer

A)  negative and equal to P2bcP3. 
B)  negative and equal to P1bcP2. 
C)  positive and equal to P2bcP3. 
D)  positive and equal to P1abP2. 
A)  negative and equal to P2bcP3. 
B)  negative and equal to P1bcP2. 
C)  positive and equal to P2bcP3. 
D)  positive and equal to P1abP2.

Question 6

Persuasive advertising is used to

Accepted Answer

A)  induce a consumer to try a product and discover a previously unknown taste for it. 
B)  promote only used goods. 
C)  sell to an established clientele. 
D)  cut costs. 
A)  induce a consumer to try a product and discover a previously unknown taste for it. 
B)  promote only used goods. 
C)  sell to an established clientele. 
D)  cut costs.

Question 7

In a monopolistically competitive market, having a large number of firms in the market means that

Accepted Answer

A)  no firm attempts to take into account the reaction of rival firms. 
B)  individual firms will have a large portion of the market giving them monopoly power. 
C)  firms will get together and collude because this will be the only way to earn monopoly profits. 
D)  firms will cooperate with each other to drive competitors out of the market. 
A)  no firm attempts to take into account the reaction of rival firms. 
B)  individual firms will have a large portion of the market giving them monopoly power. 
C)  firms will get together and collude because this will be the only way to earn monopoly profits. 
D)  firms will cooperate with each other to drive competitors out of the market.

Question 8

Which of the following is the long-run outcome for monopolistic competition?

Accepted Answer

A)  MR > MC. 
B)  P > ATC > MC. 
C)  P = ATC. 
D)  P > ATC. 
A)  MR > MC. 
B)  P > ATC > MC. 
C)  P = ATC. 
D)  P > ATC.

Question 9

Compared with a firm in a perfectly competitive market, the demand curve faced by a monopolistically competitive firm is

Accepted Answer

A)  more elastic. 
B)  more inelastic. 
C)  perfectly elastic. 
D)  perfectly inelastic. 
A)  more elastic. 
B)  more inelastic. 
C)  perfectly elastic. 
D)  perfectly inelastic.

Question 10

Advertisement in which firms aim messages to as many customers as possible via media is known as

Accepted Answer

A)  direct marketing. 
B)  mass marketing. 
C)  indirect marketing. 
D)  interactive marketing. 
A)  direct marketing. 
B)  mass marketing. 
C)  indirect marketing. 
D)  interactive marketing.

Question 11

-Use the above figure. The total cost earned by this monopolistically competitive firm is

Accepted Answer

A)  $2,080. 
B)  $3,150. 
C)  $1,600. 
D)  $1,900. 
A)  $2,080. 
B)  $3,150. 
C)  $1,600. 
D)  $1,900.

Question 12

Explain why the amount that firms spend on advertising depends on the characteristics of their products.

Accepted Answer

There are three types of goods: search g

Question 13

A market situation in which a large number of firms produce similar but not identical products is

Accepted Answer

A)  a monopoly. 
B)  an oligopoly. 
C)  monopolistic competition. 
D)  perfect competition. 
A)  a monopoly. 
B)  an oligopoly. 
C)  monopolistic competition. 
D)  perfect competition.

Question 14

Which is NOT a characteristic of monopolistic competition?

Accepted Answer

A)  small share of market to each firm 
B)  lack of collusion among firms 
C)  few firms in the industry 
D)  independence of each firm's decisions 
A)  small share of market to each firm 
B)  lack of collusion among firms 
C)  few firms in the industry 
D)  independence of each firm's decisions

Question 15

If monopolistically competitive firms earn short-run economic profits, we expect to see

Accepted Answer

A)  new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits. 
B)  new firms trying to enter the industry, but unable to do so because of barriers to entry. 
C)  existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to earn zero economic profits. 
D)  existing firms increasing prices to try to capture larger economic profits. 
A)  new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits. 
B)  new firms trying to enter the industry, but unable to do so because of barriers to entry. 
C)  existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to earn zero economic profits. 
D)  existing firms increasing prices to try to capture larger economic profits.

Question 16

The major similarity between monopolistic competition and perfect competition is

Accepted Answer

A)  the shape of the demand curve. 
B)  that both assume many buyers and sellers. 
C)  price equals marginal revenue in each. 
D)  both assume products are differentiated. 
A)  the shape of the demand curve. 
B)  that both assume many buyers and sellers. 
C)  price equals marginal revenue in each. 
D)  both assume products are differentiated.

Question 17

When a telemarketer calls you about a product, this is an example of

Accepted Answer

A)  direct marketing. 
B)  indirect marketing. 
C)  searching for a good. 
D)  persuasive marketing. 
A)  direct marketing. 
B)  indirect marketing. 
C)  searching for a good. 
D)  persuasive marketing.

Question 18

The monopolistically competitive firm's economic profits tend toward zero in the long run. Why is this so?

Accepted Answer

A)  Monopolistically competitive firm's are rarely able to maintain the corporate discipline necessary to sustain profits in the long run. 
B)  If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return. 
C)  In the long run, other firms will successfully offer substitutes for the profitable firm's product, and competition will eliminate economic profits. 
D)  Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive. 
A)  Monopolistically competitive firm's are rarely able to maintain the corporate discipline necessary to sustain profits in the long run. 
B)  If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return. 
C)  In the long run, other firms will successfully offer substitutes for the profitable firm's product, and competition will eliminate economic profits. 
D)  Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive.

Question 19

The demand curve for a monopolistically competitive firm is

Accepted Answer

A)  more elastic than for a perfectly competitive firm. 
B)  more elastic than for a monopoly firm. 
C)  more inelastic than for a monopoly firm. 
D)  the same elasticity as a perfectly competitive firm. 
A)  more elastic than for a perfectly competitive firm. 
B)  more elastic than for a monopoly firm. 
C)  more inelastic than for a monopoly firm. 
D)  the same elasticity as a perfectly competitive firm.

Question 20

-Refer to the above figure. Economic profits for this firm are

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information. 
A)  negative. 
B)  zero. 
C)  positive. 
D)  undetermined without more information.

Exam 25: Monopolistic Competition

All of Jill's friends have been telling Jill that she must see a certain movie but she is not sure that she will like it. The movie is a(n)

In the short run, a monopolistically competitive firm

-The short-run profit-maximizing output level for a monopolistically competitive firm is the point at which

Explain the difference between informational advertising and persuasive advertising. Give an example of a product that would be the subject of each type of advertising and explain why that type of advertising fits the product.

-Refer to the above figure. Economic profits for this firm are

Persuasive advertising is used to

In a monopolistically competitive market, having a large number of firms in the market means that

Which of the following is the long-run outcome for monopolistic competition?

Compared with a firm in a perfectly competitive market, the demand curve faced by a monopolistically competitive firm is

Advertisement in which firms aim messages to as many customers as possible via media is known as

-Use the above figure. The total cost earned by this monopolistically competitive firm is

Explain why the amount that firms spend on advertising depends on the characteristics of their products.

A market situation in which a large number of firms produce similar but not identical products is

Which is NOT a characteristic of monopolistic competition?

If monopolistically competitive firms earn short-run economic profits, we expect to see

The major similarity between monopolistic competition and perfect competition is

When a telemarketer calls you about a product, this is an example of

The monopolistically competitive firm's economic profits tend toward zero in the long run. Why is this so?

The demand curve for a monopolistically competitive firm is

-Refer to the above figure. Economic profits for this firm are

The Nature of Economics

Scarcity and the World of Trade-Offs

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Perfect Competition

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