Question 1

It has been argued that in the long run monopolistic competition is inefficient because

Accepted Answer

A)  there are too many firms, each with excess capacity, producing too little output. 
B)  there are few many firms, each with excess capacity, producing too much output. 
C)  minimum average total costs are achieved but price exceeds marginal cost. 
D)  minimum average total costs are not achieved and marginal cost exceeds price. 
A)  there are too many firms, each with excess capacity, producing too little output. 
B)  there are few many firms, each with excess capacity, producing too much output. 
C)  minimum average total costs are achieved but price exceeds marginal cost. 
D)  minimum average total costs are not achieved and marginal cost exceeds price.

Question 2

Which of the following is TRUE for a monopolistically competitive firm?

Accepted Answer

A) MR = P B) MR > P C) MR < P D) MR = AFC A) MR = P B) MR > P C) MR < P D) MR = AFC

Question 3

Carol has just purchased a cereal she saw advertised on TV because of the health benefits contained in the ad. The TV ad is an example of

Accepted Answer

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

Question 4

In which market structure will a firm choose not to shut down when price is less than average variable cost?

Accepted Answer

A)  perfect competition 
B)  monopoly 
C)  monopolistic competition 
D)  All of the above. Any firms will shut down when P < AVC. 
A)  perfect competition 
B)  monopoly 
C)  monopolistic competition 
D)  All of the above. Any firms will shut down when P < AVC.

Question 5

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

Accepted Answer

A)  $300. 
B)  $285. 
C)  $180. 
D)  $255. 
A)  $300. 
B)  $285. 
C)  $180. 
D)  $255.

Question 6

Persuasive advertising is mostly used for

Accepted Answer

A)  an inferior good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good. 
A)  an inferior good. 
B)  a search good. 
C)  an experience good. 
D)  a persuasive good.

Question 7

A monopolistically competitive firm finds its profit-maximizing rate of output by equating

Accepted Answer

A)  the marginal revenue of advertising with the marginal cost of advertising. 
B)  average revenue and average total cost. 
C)  price and marginal cost. 
D)  marginal revenue and marginal cost. 
A)  the marginal revenue of advertising with the marginal cost of advertising. 
B)  average revenue and average total cost. 
C)  price and marginal cost. 
D)  marginal revenue and marginal cost.

Question 8

The key feature of monopolistic competition is

Accepted Answer

A)  interdependence of the firms. 
B)  lack of advertisement. 
C)  product differentiation. 
D)  the small number of firms in the industry. 
A)  interdependence of the firms. 
B)  lack of advertisement. 
C)  product differentiation. 
D)  the small number of firms in the industry.

Question 9

The goal of advertising is to

Accepted Answer

A)  pay for public broadcasting. 
B)  differentiate a firm's product. 
C)  overwhelm the buyer so they buy a firm's product. 
D)  minimize cost curves for the firm. 
A)  pay for public broadcasting. 
B)  differentiate a firm's product. 
C)  overwhelm the buyer so they buy a firm's product. 
D)  minimize cost curves for the firm.

Question 10

In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

Accepted Answer

A)  total 
B)  fixed 
C)  variable 
D)  marginal 
A)  total 
B)  fixed 
C)  variable 
D)  marginal

Question 11

In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which

Accepted Answer

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

Question 12

The type of advertising used for an experience good is

Accepted Answer

A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising. 
A)  informational advertising. 
B)  persuasive advertising. 
C)  search advertising. 
D)  experience advertising.

Question 13

The demand curve faced by a monopolistically competitive firms is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  unitary elastic. 
A)  horizontal. 
B)  vertical. 
C)  downward sloping. 
D)  unitary elastic.

Question 14

Compared with a perfectly competitive firm facing the same costs, long-run equilibrium for a monopolistically competitive firm will result in

Accepted Answer

A)  a higher price and greater output. 
B)  a lower price and less output. 
C)  a higher price and less output. 
D)  a lower price and greater output. 
A)  a higher price and greater output. 
B)  a lower price and less output. 
C)  a higher price and less output. 
D)  a lower price and greater output.

Question 15

The goal of advertising is to

Accepted Answer

A)  increase the price elasticity of demand for the firm's product. 
B)  reduce the price elasticity of demand for the firm's product. 
C)  increase the standardization of the industry. 
D)  encourage firms to enter into the industry. 
A)  increase the price elasticity of demand for the firm's product. 
B)  reduce the price elasticity of demand for the firm's product. 
C)  increase the standardization of the industry. 
D)  encourage firms to enter into the industry.

Question 16

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

Accepted Answer

A)  +$300. 
B)  +$15. 
C)  -$15. 
D)  $0. 
A)  +$300. 
B)  +$15. 
C)  -$15. 
D)  $0.

Question 17

For the monopolistically competitive firm, in both the short run and the long run

Accepted Answer

A)  the demand curve is inelastic. 
B)  price will exceed marginal cost. 
C)  there will be no economic profit. 
D)  production will be at minimum average cost. 
A)  the demand curve is inelastic. 
B)  price will exceed marginal cost. 
C)  there will be no economic profit. 
D)  production will be at minimum average cost.

Question 18

A search good is a product

Accepted Answer

A)  with qualities that consumers lack the expertise to assess without assistance. 
B)  that emphasizes the features of its product. 
C)  with characteristics that enable an individual to evaluate the product's quality in advance of a purchase. 
D)  that an individual must consume before the quality can be established. 
A)  with qualities that consumers lack the expertise to assess without assistance. 
B)  that emphasizes the features of its product. 
C)  with characteristics that enable an individual to evaluate the product's quality in advance of a purchase. 
D)  that an individual must consume before the quality can be established.

Question 19

When you see a preview of a coming movie at the movie theater, this is

Accepted Answer

A)  informational advertising. 
B)  direct market advertising. 
C)  indirect market advertising. 
D)  persuasive advertising. 
A)  informational advertising. 
B)  direct market advertising. 
C)  indirect market advertising. 
D)  persuasive advertising.

Question 20

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve would represent the average variable cost?

Accepted Answer

A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above 
A)  Curve 1 
B)  Curve 2 
C)  Curve 3 
D)  none of the above

Exam 25: Monopolistic Competition

It has been argued that in the long run monopolistic competition is inefficient because

Which of the following is TRUE for a monopolistically competitive firm?

Carol has just purchased a cereal she saw advertised on TV because of the health benefits contained in the ad. The TV ad is an example of

In which market structure will a firm choose not to shut down when price is less than average variable cost?

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

Persuasive advertising is mostly used for

A monopolistically competitive firm finds its profit-maximizing rate of output by equating

The key feature of monopolistic competition is

The goal of advertising is to

In a long-run equilibrium in a monopolistically competitive industry that produces information products, revenues are equal to the ________ costs of developing, producing, and selling the product.

In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which

The type of advertising used for an experience good is

The demand curve faced by a monopolistically competitive firms is

Compared with a perfectly competitive firm facing the same costs, long-run equilibrium for a monopolistically competitive firm will result in

The goal of advertising is to

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

For the monopolistically competitive firm, in both the short run and the long run

A search good is a product

When you see a preview of a coming movie at the movie theater, this is

-Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve would represent the average variable cost?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters