Question 1

Which of the following is an example of a monopolistically competitive industry?

Accepted Answer

A)  computer operating systems 
B)  tennis balls 
C)  movies 
D)  cable television 
A)  computer operating systems 
B)  tennis balls 
C)  movies 
D)  cable television

Question 2

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 C?

Accepted Answer

A)  13% 
B)  32% 
C)  52% 
D)  84% 
A)  13% 
B)  32% 
C)  52% 
D)  84%

Question 3

In a monopolistically competitive industry, firms set price

Accepted Answer

A)  equal to marginal cost since each firm is a price taker. 
B)  below marginal cost since each firm is a price taker. 
C)  above marginal cost since each firm is a price setter. 
D)  always a fraction of marginal cost since each firm is a price setter. 
A)  equal to marginal cost since each firm is a price taker. 
B)  below marginal cost since each firm is a price taker. 
C)  above marginal cost since each firm is a price setter. 
D)  always a fraction of marginal cost since each firm is a price setter.

Question 4

Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

Accepted Answer

Advertising manipulates people's tastes

Question 5

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 6

The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n)

Accepted Answer

A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  oligopoly. 
D)  monopoly. 
A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  oligopoly. 
D)  monopoly.

Question 7

Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

Accepted Answer

A)  rule for maximizing profits 
B)  ability to earn profits in the short run 
C)  entry in the long run 
D)  price exceeds marginal cost 
A)  rule for maximizing profits 
B)  ability to earn profits in the short run 
C)  entry in the long run 
D)  price exceeds marginal cost

Question 8

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

Accepted Answer

A) True 
 B)False

Question 9

When a firm operates with excess capacity,

Accepted Answer

A)  additional production would lower the average total cost. 
B)  additional production would increase the average total cost. 
C)  it must be a perfectly competitive firm. 
D)  it must be a monopolistically competitive firm. 
A)  additional production would lower the average total cost. 
B)  additional production would increase the average total cost. 
C)  it must be a perfectly competitive firm. 
D)  it must be a monopolistically competitive firm.

Question 10

Professional organizations and producer groups have an incentive to

Accepted Answer

A)  restrict advertising in order to enhance competition on the basis of price. 
B)  restrict advertising in order to reduce competition on the basis of price. 
C)  encourage advertising in order to reduce competition on the basis of price. 
D)  encourage advertising in order to enhance competition on the basis of price. 
A)  restrict advertising in order to enhance competition on the basis of price. 
B)  restrict advertising in order to reduce competition on the basis of price. 
C)  encourage advertising in order to reduce competition on the basis of price. 
D)  encourage advertising in order to enhance competition on the basis of price.

Question 11

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.

Accepted Answer

A) True 
 B)False

Question 12

Figure 16-10
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-10. Efficient scale is reached

Accepted Answer

A)  at 100 units. 
B)  at 133.33 units. 
C)  between 133.33 units and 154.92 units. 
D)  at 154.92 units. 
A)  at 100 units. 
B)  at 133.33 units. 
C)  between 133.33 units and 154.92 units. 
D)  at 154.92 units.

Question 13

An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,

Accepted Answer

A)  price may exceed marginal revenue, but in the long run, price equals marginal revenue. 
B)  price may exceed marginal cost, but in the long run, price equals marginal cost. 
C)  price may exceed average total cost, but in the long run, price equals average total cost. 
D)  there are many firms in the market, but in the long run, there are only a few firms in the market. 
A)  price may exceed marginal revenue, but in the long run, price equals marginal revenue. 
B)  price may exceed marginal cost, but in the long run, price equals marginal cost. 
C)  price may exceed average total cost, but in the long run, price equals average total cost. 
D)  there are many firms in the market, but in the long run, there are only a few firms in the market.

Question 14

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. 
B)  between 100 and 133.33 units of output. 
C)  133.33 units of output. 
D)  154.92 units of output. 
A)  100 units of output. 
B)  between 100 and 133.33 units of output. 
C)  133.33 units of output. 
D)  154.92 units of output.

Question 15

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

Accepted Answer

A)  enhance the social welfare of society. 
B)  increase the number of fast-food restaurants. 
C)  reduce barriers to entry in imperfect markets. 
D)  reduce the competitive nature of local fast-food markets. 
A)  enhance the social welfare of society. 
B)  increase the number of fast-food restaurants. 
C)  reduce barriers to entry in imperfect markets. 
D)  reduce the competitive nature of local fast-food markets.

Question 16

Free entry and exit means that the number of firms in the market adjusts until

Accepted Answer

A)  producers continuously enter the market freely. 
B)  the market grows to a profitable level. 
C)  economic profits are driven to zero. 
D)  products are free. 
A)  producers continuously enter the market freely. 
B)  the market grows to a profitable level. 
C)  economic profits are driven to zero. 
D)  products are free.

Question 17

Some firms have an incentive to advertise because they sell a

Accepted Answer

A)  homogeneous product and charge a price equal to marginal cost. 
B)  homogeneous product and charge a price above marginal cost. 
C)  differentiated product and charge a price equal to marginal cost. 
D)  differentiated product and charge a price above marginal cost. 
A)  homogeneous product and charge a price equal to marginal cost. 
B)  homogeneous product and charge a price above marginal cost. 
C)  differentiated product and charge a price equal to marginal cost. 
D)  differentiated product and charge a price above marginal cost.

Question 18

A monopolistically competitive market

Accepted Answer

A)  is imperfectly competitive, and all imperfectly competitive markets are monopolistically competitive. 
B)  is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive. 
C)  is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive. 
D)  is not imperfectly competitive. 
A)  is imperfectly competitive, and all imperfectly competitive markets are monopolistically competitive. 
B)  is imperfectly competitive, but not all imperfectly competitive markets are monopolistically competitive. 
C)  is imperfectly competitive, whereas an oligopolistic market is not imperfectly competitive. 
D)  is not imperfectly competitive.

Question 19

Defenders of advertising

Accepted Answer

A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct. 
A)  concede that advertising increases firms' market power. 
B)  concede that advertising makes entry by new firms more difficult. 
C)  contend that firms use advertising to provide useful information to consumers. 
D)  All of the above are correct.

Question 20

A new Mexican restaurant opened in the town of Manchester. The residents of the town are

Accepted Answer

A)  happy because of the product-variety externality, while other restaurant owners are unhappy because of the business-stealing externality. 
B)  happy because of the business-stealing externality, while other restaurant owners are unhappy because of the product-variety externality. 
C)  unhappy because of the product-variety externality, while other restaurant owners are happy because of the business-stealing externality. 
D)  unhappy because of the business-stealing externality, while other restaurant owners are happy because of the product-variety externality. 
A)  happy because of the product-variety externality, while other restaurant owners are unhappy because of the business-stealing externality. 
B)  happy because of the business-stealing externality, while other restaurant owners are unhappy because of the product-variety externality. 
C)  unhappy because of the product-variety externality, while other restaurant owners are happy because of the business-stealing externality. 
D)  unhappy because of the business-stealing externality, while other restaurant owners are happy because of the product-variety externality.

Exam 16: Monopolistic Competition

Which of the following is an example of a monopolistically competitive industry?

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 C?

In a monopolistically competitive industry, firms set price

Assume the role of a critic of advertising. Describe the characteristics of advertising that reduce the effectiveness of markets and decrease the social welfare of society.

The product-variety externality arises in monopolistically competitive markets because

The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n)

Which of the following is a feature that is shared between perfect competition and monopolistic competition, but not between monopolistic competition and monopoly?

Monopolistic competition and monopoly are examples of a market structure called imperfect competition.

When a firm operates with excess capacity,

Professional organizations and producer groups have an incentive to

The Mikati Philippines Hard Rock Cafe has the exact same menu as the Hard Rock Cafe in New York. This is an example of a brand name enhancing market efficiency for U.S. tourists visiting the Philippines.

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. Efficient scale is reached

An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run,

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

In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to

Free entry and exit means that the number of firms in the market adjusts until

Some firms have an incentive to advertise because they sell a

A monopolistically competitive market

Defenders of advertising

A new Mexican restaurant opened in the town of Manchester. The residents of the town are

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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