Question 1

When a firm's demand curve is tangent to its average total cost curve, the

Accepted Answer

A)  firm's economic profit is zero. 
B)  firm must be earning economic profits. 
C)  firm must be incurring economic losses. 
D)  firm must be operating at its efficient scale. 
A)  firm's economic profit is zero. 
B)  firm must be earning economic profits. 
C)  firm must be incurring economic losses. 
D)  firm must be operating at its efficient scale.

Question 2

In which of the following market structures can firms earn economic profits in the long run?

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  monopoly 
D)  Both b and c are correct. 
A)  perfect competition 
B)  monopolistic competition 
C)  monopoly 
D)  Both b and c are correct.

Question 3

Table 16-4
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.  
-Refer to Table 16-4. What price will this firm charge to maximize profit?

Accepted Answer

A)  $25 
B)  $30 
C)  $35 
D)  $40 
A)  $25 
B)  $30 
C)  $35 
D)  $40

Question 4

As firms exit a monopolistically competitive market, profits of remaining firms

Accepted Answer

A)  decline, and product diversity in the market decreases. 
B)  decline, and product diversity in the market increases. 
C)  rise, and product diversity in the market decreases. 
D)  rise, and product diversity in the market increases. 
A)  decline, and product diversity in the market decreases. 
B)  decline, and product diversity in the market increases. 
C)  rise, and product diversity in the market decreases. 
D)  rise, and product diversity in the market increases.

Question 5

Which of the following statements regarding brand names in advertising is not correct?

Accepted Answer

A)  Brand names provide consumers with information about quality when quality cannot be easily judged in advance of purchase. 
B)  Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm. 
C)  Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product. 
D)  Brand names can cause consumers to perceive differences in products that do not actually exist. 
A)  Brand names provide consumers with information about quality when quality cannot be easily judged in advance of purchase. 
B)  Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm. 
C)  Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product. 
D)  Brand names can cause consumers to perceive differences in products that do not actually exist.

Question 6

Figure 16-4  
-Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total revenue of approximately

Accepted Answer

A)  $12,000. 
B)  $21,000. 
C)  $24,000. 
D)  $27,300. 
A)  $12,000. 
B)  $21,000. 
C)  $24,000. 
D)  $27,300.

Question 7

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Accepted Answer

Some people argue that celebrity endorse

Question 8

Scenario 16-5
McDonald's restaurants has recently announced intentions to open a new restaurant in Smalltown, Indiana. Assume that the fast-food restaurant market in Smalltown is characterized by monopolistic competition.
-Refer to Scenario 16-5. As a result of the new McDonald's, existing fast food restaurants in Smalltown are likely to

Accepted Answer

A)  suffer from a product-variety externality. 
B)  suffer from a business-stealing externality. 
C)  increase their production to achieve the efficient scale. 
D)  Both b and c are correct. 
A)  suffer from a product-variety externality. 
B)  suffer from a business-stealing externality. 
C)  increase their production to achieve the efficient scale. 
D)  Both b and c are correct.

Question 9

Table 16-6
Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's.  
-Refer to Table 16-6. When maximizing profit, what price does Beatrice's charge for a cake?

Accepted Answer

A)  $24 
B)  $30 
C)  $36 
D)  $42 
A)  $24 
B)  $30 
C)  $36 
D)  $42

Question 10

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

Accepted Answer

A)  an increase in demand for each firm 
B)  a decrease in demand for each firm 
C)  a downward shift in the marginal cost curve for each firm 
D)  an upward shift in the marginal cost curve for each firm 
A)  an increase in demand for each firm 
B)  a decrease in demand for each firm 
C)  a downward shift in the marginal cost curve for each firm 
D)  an upward shift in the marginal cost curve for each firm

Question 11

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. What is the concentration ratio in Industry D?

Accepted Answer

A)  23% 
B)  39% 
C)  58% 
D)  72% 
A)  23% 
B)  39% 
C)  58% 
D)  72%

Question 12

Scenario 16-9
Dean goes to the grocery store to buy chips and soda for a party. He purchases brand name products even though generic versions are available at lower prices. His friend John says he was irrational to spend more for a nearly identical product. His friend Martina agreed with Dean's decision to spend more for the brand name products.
-Refer to Scenario 16-9. If advertising were banned in these markets, what would likely happen to the prices of chips and soda?

Accepted Answer

They would

Question 13

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Accepted Answer

A)  average revenue exceeds marginal revenue 
B)  marginal revenue exceeds average revenue 
C)  average revenue is equal to marginal revenue 
D)  revenue is always maximized along with profit 
A)  average revenue exceeds marginal revenue 
B)  marginal revenue exceeds average revenue 
C)  average revenue is equal to marginal revenue 
D)  revenue is always maximized along with profit

Question 14

Which of the following is a commonly-cited benefit of advertising?

Accepted Answer

A)  Advertising can be a signal of the quality of a product. 
B)  Advertising impedes competition. 
C)  Advertising reduces the deadweight loss associated with monopolistic competition. 
D)  Advertising encourages free entry, which increases profits. 
A)  Advertising can be a signal of the quality of a product. 
B)  Advertising impedes competition. 
C)  Advertising reduces the deadweight loss associated with monopolistic competition. 
D)  Advertising encourages free entry, which increases profits.

Question 15

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.

Accepted Answer

Business-stealing effect: incumbent firm

Question 16

Figure 16-12  
-Refer to Figure 16-12. When this firm profit­maximizes, what is the amount of the firm's profit or loss?

Accepted Answer

The answer of Figure 16-12  
-Refer to Figure 16-12....

Question 17

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

Accepted Answer

The answer of For the economy as a whole, about...

Question 18

A monopolistically competitive firm faces a downward-sloping demand curve because there are few firms in the market.

Accepted Answer

A) True 
 B)False

Question 19

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Accepted Answer

A)  chooses its profit-maximizing quantity where marginal revenue equals marginal cost. 
B)  sells its product in a highly-concentrated market. 
C)  faces a downward-sloping demand curve for its product. 
D)  can earn profits in the long run. 
A)  chooses its profit-maximizing quantity where marginal revenue equals marginal cost. 
B)  sells its product in a highly-concentrated market. 
C)  faces a downward-sloping demand curve for its product. 
D)  can earn profits in the long run.

Question 20

Figure 16-1        
-Refer to Figure 16-1. Which of the following sets of explanations best describes the differences between the graphs above?

Accepted Answer

A)  Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: oligopoly firm's demand curve
Panel D: perfectly competitive firm's demand curve 
B)  Panel A: oligopoly firm's demand curve Panel B: perfectly competitive firm's demand curve
Panel C: monopolistically competitive firm's demand curve
Panel D: supply curve 
C)  Panel A: perfectly competitive firm's demand curve Panel B: monopolistically competitive firm's demand curve Panel C: monopoly firm's demand curve
Panel D: supply curve 
D)  Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: perfectly competitive firm's demand curve
Panel D: supply curve 
A)  Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: oligopoly firm's demand curve
Panel D: perfectly competitive firm's demand curve 
B)  Panel A: oligopoly firm's demand curve Panel B: perfectly competitive firm's demand curve
Panel C: monopolistically competitive firm's demand curve
Panel D: supply curve 
C)  Panel A: perfectly competitive firm's demand curve Panel B: monopolistically competitive firm's demand curve Panel C: monopoly firm's demand curve
Panel D: supply curve 
D)  Panel A: monopolistically competitive firm's demand curve Panel B: monopoly firm's demand curve Panel C: perfectly competitive firm's demand curve
Panel D: supply curve

Exam 16: Monopolistic Competition

When a firm's demand curve is tangent to its average total cost curve, the

In which of the following market structures can firms earn economic profits in the long run?

Table 16-4 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. -Refer to Table 16-4. What price will this firm charge to maximize profit?

As firms exit a monopolistically competitive market, profits of remaining firms

Which of the following statements regarding brand names in advertising is not correct?

Figure 16-4 -Refer to Figure 16-4. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total revenue of approximately

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Table 16-6 Beatrice's Birthday Cakes is one bakery among many in the market for birthday cakes. The following table presents cost and revenue data for birthday cakes at Beatrice's. -Refer to Table 16-6. When maximizing profit, what price does Beatrice's charge for a cake?

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?

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. What is the concentration ratio in Industry D?

A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

Which of the following is a commonly-cited benefit of advertising?

Entry of firms in a monopolistically competitive industry is characterized by two externalities. List them and briefly describe how consumers and existing firms are influenced by them.

Figure 16-12 -Refer to Figure 16-12. When this firm profit­maximizes, what is the amount of the firm's profit or loss?

For the economy as a whole, about what percentage of total firm revenue is spent on advertising?

A monopolistically competitive firm faces a downward-sloping demand curve because there are few firms in the market.

A profit-maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market

Figure 16-1 -Refer to Figure 16-1. Which of the following sets of explanations best describes the differences between the graphs above?

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

Filters

Figure 16-12 -Refer to Figure 16-12. When this firm profitmaximizes, what is the amount of the firm's profit or loss?