Question 1

All of the following are characteristics of monopolistic competition EXCEPT

Accepted Answer

A)  a few firms dominate the industry. 
B)  product differentiation. 
C)  many firms in the industry. 
D)  advertising. 
A)  a few firms dominate the industry. 
B)  product differentiation. 
C)  many firms in the industry. 
D)  advertising.

Question 2

Which of the following statements is INCORRECT regarding the model for information products?

Accepted Answer

A)  Average total costs slope downward, because average variable cost is constant, average fixed cost slopes downward. 
B)  The firm maximizes profit by setting the price of its product equal to marginal cost. 
C)  Marginal cost equals average variable cost. 
D)  In the long run, accounting profit is positive. 
A)  Average total costs slope downward, because average variable cost is constant, average fixed cost slopes downward. 
B)  The firm maximizes profit by setting the price of its product equal to marginal cost. 
C)  Marginal cost equals average variable cost. 
D)  In the long run, accounting profit is positive.

Question 3

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  average fixed cost. 
D)  average variable cost. 
A)  marginal cost. 
B)  average total cost. 
C)  average fixed cost. 
D)  average variable cost.

Question 4

Average total cost for an information product would

Accepted Answer

A)  first decrease and then increase as quantity increases. 
B)  increase constantly as quantity increases. 
C)  decrease constantly as quantity increases. 
D)  remain constant as quantity increases. 
A)  first decrease and then increase as quantity increases. 
B)  increase constantly as quantity increases. 
C)  decrease constantly as quantity increases. 
D)  remain constant as quantity increases.

Question 5

Products can be differentiated

Accepted Answer

A)  if the buyers are homogeneous and their number increases. 
B)  by location and by brand name. 
C)  only by brand name. 
D)  none of the above. 
A)  if the buyers are homogeneous and their number increases. 
B)  by location and by brand name. 
C)  only by brand name. 
D)  none of the above.

Question 6

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

Accepted Answer

A)  $2,560. 
B)  $1,600. 
C)  $480. 
D)  $1,900. 
A)  $2,560. 
B)  $1,600. 
C)  $480. 
D)  $1,900.

Question 7

The two economists associated with the development of the theory of monopolistic competition were

Accepted Answer

A)  Joan Robinson and Edward Chamberlin. 
B)  David Hume and Adam Smith. 
C)  John Neville Keynes and John Maynard Keynes. 
D)  Carl Menger and Eugen Von Bohm-Bawerk. 
A)  Joan Robinson and Edward Chamberlin. 
B)  David Hume and Adam Smith. 
C)  John Neville Keynes and John Maynard Keynes. 
D)  Carl Menger and Eugen Von Bohm-Bawerk.

Question 8

A good example of a monopolistic competitive industry is

Accepted Answer

A)  the federal highway system. 
B)  wheat farms in the United States. 
C)  the country music industry. 
D)  the four major textbook publishers together with nearly 90 percent of industry sales. 
A)  the federal highway system. 
B)  wheat farms in the United States. 
C)  the country music industry. 
D)  the four major textbook publishers together with nearly 90 percent of industry sales.

Question 9

The model of perfect competition and the model of monopolistic competition differ in that

Accepted Answer

A)  perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers. 
B)  perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition. 
C)  perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits. 
D)  perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated. 
A)  perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers. 
B)  perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition. 
C)  perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits. 
D)  perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated.

Question 10

In the long run, the economic profits of a monopolistically competitive firm

Accepted Answer

A)  will tend to be larger than in the short run. 
B)  equal zero. 
C)  will be the average short-run profits earned in the last five years. 
D)  will be the same as in the short run. 
A)  will tend to be larger than in the short run. 
B)  equal zero. 
C)  will be the average short-run profits earned in the last five years. 
D)  will be the same as in the short run.

Question 11

-The above figure shows the situations of a monopolistic competitor in the short run. To maximize profits, the firm should produce

Accepted Answer

A)  10,000 units. 
B)  12,000 units. 
C)  13,000 unit. 
D)  somewhere between 10,000 and 12,000 units. 
A)  10,000 units. 
B)  12,000 units. 
C)  13,000 unit. 
D)  somewhere between 10,000 and 12,000 units.

Question 12

Explain how advertising can act as a signal.

Accepted Answer

Advertising can act as a signal that the

Question 13

An example of direct marketing is

Accepted Answer

A)  the use of coupons in newspapers. 
B)  allowing the use of the product for 7 days before the consumer is billed for the product. 
C)  charging customers who pay with cash a different price than those using credit cards. 
D)  the use of personalized advertising by using mailing lists. 
A)  the use of coupons in newspapers. 
B)  allowing the use of the product for 7 days before the consumer is billed for the product. 
C)  charging customers who pay with cash a different price than those using credit cards. 
D)  the use of personalized advertising by using mailing lists.

Question 14

In the long run, a monopolistic competitor will produce to the point at which

Accepted Answer

A)  average total costs are at the minimum of possible ATC. 
B)  average total costs are higher than the minimum of possible ATC. 
C)  resources are used at the lowest possible cost. 
D)  at the lowest possible price. 
A)  average total costs are at the minimum of possible ATC. 
B)  average total costs are higher than the minimum of possible ATC. 
C)  resources are used at the lowest possible cost. 
D)  at the lowest possible price.

Question 15

How does an information product differ from a product such as a desk?

Accepted Answer

An information product has a very high f

Question 16

In the short run, a firm operating as a monopolistic competitor will produce to the point at which

Accepted Answer

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

Question 17

The type of advertising that is used to induce a consumer to discover a previously unknown taste for an item is known as

Accepted Answer

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

Question 18

-Refer to the above figure. Which panel represents the long-run situation for a monopolistically competitive firm?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 19

The ATC curve for a firm that produces an information product

Accepted Answer

A)  slopes downward, because AVC is constant, AFC slopes downward, and ATC = AVC + AFC. 
B)  slopes upward, because AFC is constant, AVC slopes upward, and ATC = AFC + AVC. 
C)  is U-shaped, because AVC is U-shaped, AFC slopes downward, and ATC = AVC + AFC. 
D)  slopes downward, because MC slopes downward, AVC is constant, and ATC = AVC +MC. 
A)  slopes downward, because AVC is constant, AFC slopes downward, and ATC = AVC + AFC. 
B)  slopes upward, because AFC is constant, AVC slopes upward, and ATC = AFC + AVC. 
C)  is U-shaped, because AVC is U-shaped, AFC slopes downward, and ATC = AVC + AFC. 
D)  slopes downward, because MC slopes downward, AVC is constant, and ATC = AVC +MC.

Question 20

-Refer to the above figure. This firm is operating in the

Accepted Answer

A)  long run since economic profits are greater than zero. 
B)  long run since economic profits are less than zero. 
C)  short run since economic profits are greater than zero. 
D)  short run since economic profits are less than zero. 
A)  long run since economic profits are greater than zero. 
B)  long run since economic profits are less than zero. 
C)  short run since economic profits are greater than zero. 
D)  short run since economic profits are less than zero.

Exam 25: Monopolistic Competition

All of the following are characteristics of monopolistic competition EXCEPT

Which of the following statements is INCORRECT regarding the model for information products?

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

Average total cost for an information product would

Products can be differentiated

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

The two economists associated with the development of the theory of monopolistic competition were

A good example of a monopolistic competitive industry is

The model of perfect competition and the model of monopolistic competition differ in that

In the long run, the economic profits of a monopolistically competitive firm

-The above figure shows the situations of a monopolistic competitor in the short run. To maximize profits, the firm should produce

Explain how advertising can act as a signal.

An example of direct marketing is

In the long run, a monopolistic competitor will produce to the point at which

How does an information product differ from a product such as a desk?

In the short run, a firm operating as a monopolistic competitor will produce to the point at which

The type of advertising that is used to induce a consumer to discover a previously unknown taste for an item is known as

-Refer to the above figure. Which panel represents the long-run situation for a monopolistically competitive firm?

The ATC curve for a firm that produces an information product

-Refer to the above figure. This firm is operating in the

The Nature of Economics

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