Question 1

Figure 16-10
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce

Accepted Answer

A)  100 units of output, and its profit will be negative. 
B)  100 units of output, and its profit will be zero. 
C)  133.33 units of output, and its profit will be negative. 
D)  133.33 units of output, and its profit will be zero. 
A)  100 units of output, and its profit will be negative. 
B)  100 units of output, and its profit will be zero. 
C)  133.33 units of output, and its profit will be negative. 
D)  133.33 units of output, and its profit will be zero.

Question 2

Figure 16-4  
-Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce?

Accepted Answer

A)  20 
B)  30 
C)  40 
D)  This firm will choose not to produce. 
A)  20 
B)  30 
C)  40 
D)  This firm will choose not to produce.

Question 3

The debate over the efficiency of markets in which products with brand names are sold

Accepted Answer

A)  is framed by the role of regulation in advertising. 
B)  is likely to be resolved by reference to anecdotal evidence. 
C)  hinges on whether consumers are rational in their choices. 
D)  hinges on the effectiveness of advertising that identifies price differences. 
A)  is framed by the role of regulation in advertising. 
B)  is likely to be resolved by reference to anecdotal evidence. 
C)  hinges on whether consumers are rational in their choices. 
D)  hinges on the effectiveness of advertising that identifies price differences.

Question 4

The higher the concentration ratio, the

Accepted Answer

A)  more control an individual firm has to set prices. 
B)  more competitive the industry. 
C)  less competitive the industry. 
D)  Both a and c are correct. 
A)  more control an individual firm has to set prices. 
B)  more competitive the industry. 
C)  less competitive the industry. 
D)  Both a and c are correct.

Question 5

Which of the following statements is not correct?

Accepted Answer

A)  Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. 
B)  Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. 
C)  Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. 
D)  Both monopolistic competition and perfect competition are characterized by product differentiation. 
A)  Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. 
B)  Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. 
C)  Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. 
D)  Both monopolistic competition and perfect competition are characterized by product differentiation.

Question 6

The product-variety externality arises in monopolistically competitive markets because

Accepted Answer

A)  firms produce with excess capacity. 
B)  firms try to differentiate their products. 
C)  firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D)  entry and exit is restricted. 
A)  firms produce with excess capacity. 
B)  firms try to differentiate their products. 
C)  firms would like to produce homogeneous products, but the large number of firms prohibits it. 
D)  entry and exit is restricted.

Question 7

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

A)  increase elasticity of demand for the advertised product. 
B)  reduce the ability of markets to allocate resources efficiently. 
C)  provide a signal of product quality. 
D)  be useful only for psychological effects. 
A)  increase elasticity of demand for the advertised product. 
B)  reduce the ability of markets to allocate resources efficiently. 
C)  provide a signal of product quality. 
D)  be useful only for psychological effects.

Question 8

Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that

Accepted Answer

A)  have elastic demand curves. 
B)  are very different from generic products. 
C)  are indistinguishable from generic products. 
D)  consumer-advocate groups have found to be inferior. 
A)  have elastic demand curves. 
B)  are very different from generic products. 
C)  are indistinguishable from generic products. 
D)  consumer-advocate groups have found to be inferior.

Question 9

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

Accepted Answer

A)  minimized average total cost. 
B)  chosen to produce where demand is unitary elastic. 
C)  produced the efficient scale of output. 
D)  chosen a quantity of output where average revenue equals average total cost. 
A)  minimized average total cost. 
B)  chosen to produce where demand is unitary elastic. 
C)  produced the efficient scale of output. 
D)  chosen a quantity of output where average revenue equals average total cost.

Question 10

Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products.

Accepted Answer

A) True 
 B)False

Question 11

One way in which monopolistic competition differs from oligopoly is that

Accepted Answer

A)  there are no barriers to entry in oligopolies. 
B)  in oligopoly markets there are only a few sellers. 
C)  all firms in an oligopoly eventually earn zero economic profits. 
D)  strategic interactions between firms are rare in oligopolies. 
A)  there are no barriers to entry in oligopolies. 
B)  in oligopoly markets there are only a few sellers. 
C)  all firms in an oligopoly eventually earn zero economic profits. 
D)  strategic interactions between firms are rare in oligopolies.

Question 12

"In a long-run equilibrium, price is equal to average total cost." This statement applies to

Accepted Answer

A)  competitive markets, but not to monopolistically competitive markets or monopolies. 
B)  competitive and monopolistically competitive markets, but not to monopolies. 
C)  competitive markets, monopolistically competitive markets, and monopolies. 
D)  None of the above is correct. 
A)  competitive markets, but not to monopolistically competitive markets or monopolies. 
B)  competitive and monopolistically competitive markets, but not to monopolies. 
C)  competitive markets, monopolistically competitive markets, and monopolies. 
D)  None of the above is correct.

Question 13

Which of the following goods are not likely to be sold in monopolistically competitive markets?

Accepted Answer

A)  jeans 
B)  books 
C)  tap water 
D)  clocks 
A)  jeans 
B)  books 
C)  tap water 
D)  clocks

Question 14

Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units.
-Refer to Scenario 16-7. Suppose YumYum has an opportunity to create a cheaper advertising campaign in newspapers rather than on television for its new product. This campaign will cost $8 million and is expected to result in the same 1.5 million one-time customers. YumYum should

Accepted Answer

A)  invest in the cheaper campaign because they will earn a profit. 
B)  invest in the cheaper campaign because they will signal the high quality of their product. 
C)  not invest in the cheaper campaign because they will incur a loss. 
D)  not invest in the cheaper campaign because their brand name will be negatively affected. 
A)  invest in the cheaper campaign because they will earn a profit. 
B)  invest in the cheaper campaign because they will signal the high quality of their product. 
C)  not invest in the cheaper campaign because they will incur a loss. 
D)  not invest in the cheaper campaign because their brand name will be negatively affected.

Question 15

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.  
-Refer to Table 16-1. Which industry has the highest concentration ratio?

Accepted Answer

A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D 
A)  Industry A 
B)  Industry B 
C)  Industry C 
D)  Industry D

Question 16

In monopolistically competitive markets, economic losses

Accepted Answer

A)  suggest that some existing firms will exit the market. 
B)  suggest that new firms will enter the market. 
C)  are minimized through government-imposed barriers to entry. 
D)  are never possible. 
A)  suggest that some existing firms will exit the market. 
B)  suggest that new firms will enter the market. 
C)  are minimized through government-imposed barriers to entry. 
D)  are never possible.

Question 17

Figure 16-4  
-Refer to Figure 16-4. The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

Accepted Answer

A)  -$3,000. 
B)  $3,000. 
C)  $9,000. 
D)  $24,000. 
A)  -$3,000. 
B)  $3,000. 
C)  $9,000. 
D)  $24,000.

Question 18

A monopolistically competitive industry is characterized by

Accepted Answer

A)  many firms selling products that are similar but not identical. 
B)  many firms selling identical products. 
C)  a few firms selling products that are similar but not identical. 
D)  a few firms selling highly different products. 
A)  many firms selling products that are similar but not identical. 
B)  many firms selling identical products. 
C)  a few firms selling products that are similar but not identical. 
D)  a few firms selling highly different products.

Question 19

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 20

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)  
-Refer to Scenario 16-3. When Peter maximizes his profits, how much revenue does he earn per day?

Accepted Answer

The answer of Scenario 16-3
Peter operates an ice cream shop...

Exam 16: Monopolistic Competition

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. In order to maximize its profit, the firm will choose to produce

Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce?

The debate over the efficiency of markets in which products with brand names are sold

The higher the concentration ratio, the

Which of the following statements is not correct?

The product-variety externality arises in monopolistically competitive markets because

Advertising that uses celebrity endorsements is most likely intended to

Critics of markets that are characterized by firms that sell brand name products argue that brand names encourage consumers to pay more for branded products that

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has

Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products.

One way in which monopolistic competition differs from oligopoly is that

"In a long-run equilibrium, price is equal to average total cost." This statement applies to

Which of the following goods are not likely to be sold in monopolistically competitive markets?

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1. Which industry has the highest concentration ratio?

In monopolistically competitive markets, economic losses

Figure 16-4 -Refer to Figure 16-4. The maximum total short-run economic profit for the monopolistically competitive firm in this figure is

A monopolistically competitive industry is characterized by

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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