Question 1

Advertising, brand names, packaging, and celebrity endorsements all occur in monopolistically competitive markets because:

Accepted Answer

A) significant barriers to entry exist in the real world. 
B) in the real world, there are very few markets with many firms. 
C) that gives the producer some command over the prices of their products. 
D) product differentiation seldom occurs in the real world. 
E) monopolistically competitive firms have an incentive to spend as much money as possible compared to their rivals. 
A) significant barriers to entry exist in the real world. 
B) in the real world, there are very few markets with many firms. 
C) that gives the producer some command over the prices of their products. 
D) product differentiation seldom occurs in the real world. 
E) monopolistically competitive firms have an incentive to spend as much money as possible compared to their rivals.

Question 2

Since only a few firms dominate the oligopoly market, cutthroat competition does not exist.

Accepted Answer

A) True 
 B)False

Question 3

Compared with generic products, a brand name:

Accepted Answer

A) reduces the price elasticity of demand and gives the firm more market power. 
B) increases the price elasticity of demand and gives the firm more market power. 
C) increases the price elasticity of demand and gives the firm less market power. 
D) reduces the price elasticity of demand and gives the firm less market power. 
E) has no effect on price elasticity of demand or market power. 
A) reduces the price elasticity of demand and gives the firm more market power. 
B) increases the price elasticity of demand and gives the firm more market power. 
C) increases the price elasticity of demand and gives the firm less market power. 
D) reduces the price elasticity of demand and gives the firm less market power. 
E) has no effect on price elasticity of demand or market power.

Question 4

Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 5

A most-favored customer is one who:

Accepted Answer

A) buys a firm's product regularly. 
B) is an acquaintance of the owner of the firm. 
C) is given the guarantee of receiving the lowest price for a product. 
D) spends the maximum amount of money on a firm's product. 
E) has a high purchasing power. 
A) buys a firm's product regularly. 
B) is an acquaintance of the owner of the firm. 
C) is given the guarantee of receiving the lowest price for a product. 
D) spends the maximum amount of money on a firm's product. 
E) has a high purchasing power.

Question 6

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Accepted Answer

A) True 
 B)False

Question 7

The following table shows the payoff matrix of the two firms (Firm X and Firm Y)in dollars when they advertise and when they do not advertise. Table 11.1   According to the Table 11.1, if the firms collude and decide not to advertise their combined payoff is:

Accepted Answer

A) $250. 
B) $260. 
C) $330. 
D) $300. 
E) $280 
A) $250. 
B) $260. 
C) $330. 
D) $300. 
E) $280

Question 8

If economic losses exist in a monopolistically competitive market,

Accepted Answer

A) new products will be introduced. 
B) new firms will enter the market because they see potential for profit in the future. 
C) firms will exit the market and the existing firms' demand curves will shift inward. 
D) the average total cost curve must lie below the demand curve. 
E) firms will exit the market and existing firms' demand curves will shift outward. 
A) new products will be introduced. 
B) new firms will enter the market because they see potential for profit in the future. 
C) firms will exit the market and the existing firms' demand curves will shift inward. 
D) the average total cost curve must lie below the demand curve. 
E) firms will exit the market and existing firms' demand curves will shift outward.

Question 9

In order to survive, cartels must be able to enforce contracts.However, when a cartel is trading in an illegal commodity:

Accepted Answer

A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade. 
A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade.

Question 10

In the context of market structure, the characteristic that best describes a monopolistically competitive market is that:

Accepted Answer

A) there are few firms in the market. 
B) the products produced cannot be easily differentiated. 
C) entry and exit are both difficult. 
D) firms spend a great deal on advertising and promotion. 
E) firms spend very little on advertising and promotion. 
A) there are few firms in the market. 
B) the products produced cannot be easily differentiated. 
C) entry and exit are both difficult. 
D) firms spend a great deal on advertising and promotion. 
E) firms spend very little on advertising and promotion.

Question 11

Which of the following statements about the monopolistically competitive market in the long run is true?

Accepted Answer

A) The resources are efficiently utilized. 
B) Consumers have a greater variety of products to choose from than under perfectly competitive market conditions. 
C) The marginal-revenue curve coincides with the demand curve facing the firm. 
D) The firms produce the output level that is less than the output corresponding to the minimum of average total cost. 
E) The firms operate in the upward-sloping portion of the long run average cost curve. 
A) The resources are efficiently utilized. 
B) Consumers have a greater variety of products to choose from than under perfectly competitive market conditions. 
C) The marginal-revenue curve coincides with the demand curve facing the firm. 
D) The firms produce the output level that is less than the output corresponding to the minimum of average total cost. 
E) The firms operate in the upward-sloping portion of the long run average cost curve.

Exam 18: Monopolistic Competition and Oligopoly

Advertising, brand names, packaging, and celebrity endorsements all occur in monopolistically competitive markets because:

Since only a few firms dominate the oligopoly market, cutthroat competition does not exist.

Compared with generic products, a brand name:

Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

A most-favored customer is one who:

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

The following table shows the payoff matrix of the two firms (Firm X and Firm Y)in dollars when they advertise and when they do not advertise. Table 11.1 According to the Table 11.1, if the firms collude and decide not to advertise their combined payoff is:

If economic losses exist in a monopolistically competitive market,

In order to survive, cartels must be able to enforce contracts.However, when a cartel is trading in an illegal commodity:

In the context of market structure, the characteristic that best describes a monopolistically competitive market is that:

Which of the following statements about the monopolistically competitive market in the long run is true?

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