Question 1

Which of the following is not an example of Joel Waldfogel's "Tyranny of the Market"?

Accepted Answer

A)  A daily newspaper tailored to appeal to the majority of readers in an area. 
B)  Nike creating specialized shoes for American Indians' wider feet. 
C)  Pharmaceutical companies spending research and development funds on drugs for common diseases. 
D)  Airlines offering daily direct flights from one large city to another. 
A)  A daily newspaper tailored to appeal to the majority of readers in an area. 
B)  Nike creating specialized shoes for American Indians' wider feet. 
C)  Pharmaceutical companies spending research and development funds on drugs for common diseases. 
D)  Airlines offering daily direct flights from one large city to another.

Question 2

In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.

Accepted Answer

In the case of the examples given, deman

Question 3

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Accepted Answer

A) True 
 B)False

Question 4

To maximize its profit, a monopolistically competitive firm

Accepted Answer

A)  takes the price as given and chooses its quantity, just as a competitive firm does. 
B)  takes the price as given and chooses its quantity, just as a colluding oligopolist does. 
C)  chooses its quantity and price, just as a competitive firm does. 
D)  chooses its quantity and price, just as a monopoly does. 
A)  takes the price as given and chooses its quantity, just as a competitive firm does. 
B)  takes the price as given and chooses its quantity, just as a colluding oligopolist does. 
C)  chooses its quantity and price, just as a competitive firm does. 
D)  chooses its quantity and price, just as a monopoly does.

Question 5

Monopolistic competition is the only market structure that features many sellers.

Accepted Answer

A) True 
 B)False

Question 6

Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  P > demand and P = MR 
B)  ATC > demand and MR = MC 
C)  P > MC and demand = ATC 
D)  P  MR 
A)  P > demand and P = MR 
B)  ATC > demand and MR = MC 
C)  P > MC and demand = ATC 
D)  P  MR

Question 8

List five goods that are likely sold in a monopolistically competitive market.

Accepted Answer

Books, CDs, movies,

Question 9

A concentration ratio

Accepted Answer

A)  measures the percentage of total sales of the top firm in the industry. 
B)  reflects the level of competition in an industry. 
C)  is inversely related to the price charged by the top firm in the industry. 
D)  All of the above are correct. 
A)  measures the percentage of total sales of the top firm in the industry. 
B)  reflects the level of competition in an industry. 
C)  is inversely related to the price charged by the top firm in the industry. 
D)  All of the above are correct.

Question 10

When advertising is used to relay information about price, each firm is able to enhance market power.

Accepted Answer

A) True 
 B)False

Question 11

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. How much profit will this firm earn when it chooses its output to maximize profit?

Accepted Answer

A)  a $12 loss 
B)  an $8 profit 
C)  a $25 profit 
D)  a $32 profit 
A)  a $12 loss 
B)  an $8 profit 
C)  a $25 profit 
D)  a $32 profit

Question 12

When quality cannot be easily judged in advance, what provides consumers with information about the quality of a product?

Accepted Answer

A)  a brand name 
B)  a tie-in 
C)  the quantity available for sale 
D)  the amount of deadweight loss 
A)  a brand name 
B)  a tie-in 
C)  the quantity available for sale 
D)  the amount of deadweight loss

Question 13

According to the signaling theory of advertising, consumers

Accepted Answer

A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements. 
A)  pay little or no attention to which firms advertise and which firms do not advertise. 
B)  are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. 
C)  are often more impressed by low-cost advertisements than they are by high-cost advertisements. 
D)  gain little or no information about product quality from advertisements.

Question 14

Figure 16-10
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-10. As the figure is drawn, the firm is in

Accepted Answer

A)  a short-run equilibrium but it is not in a long-run equilibrium. 
B)  a long-run equilibrium but it is not in a short-run equilibrium. 
C)  a short-run equilibrium as well as a long-run equilibrium. 
D)  neither a short-run equilibrium nor a long-run equilibrium. 
A)  a short-run equilibrium but it is not in a long-run equilibrium. 
B)  a long-run equilibrium but it is not in a short-run equilibrium. 
C)  a short-run equilibrium as well as a long-run equilibrium. 
D)  neither a short-run equilibrium nor a long-run equilibrium.

Question 15

Which of the following is not a key feature of monopolistic competition?

Accepted Answer

A)  Excess capacity 
B)  A markup of price over marginal cost 
C)  Positive economic profits for firms in the long run 
D)  Differentiated products among firms in the market 
A)  Excess capacity 
B)  A markup of price over marginal cost 
C)  Positive economic profits for firms in the long run 
D)  Differentiated products among firms in the market

Question 16

As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels. Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.

Accepted Answer

Brand-name hotels are a critic

Question 17

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

Accepted Answer

A) True 
 B)False

Question 18

Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 4, what price would a profit-maximizing monopolist charge for the product?

Accepted Answer

A)  P = 4 
B)  P = 10 
C)  P = 12 
D)  P = 20 
A)  P = 4 
B)  P = 10 
C)  P = 12 
D)  P = 20

Question 19

Economists are unanimous in their belief that advertising is socially inefficient.

Accepted Answer

A) True 
 B)False

Question 20

Figure 16-9
The figure is drawn for a monopolistically-competitive firm.  
-Refer to Figure 16-9. Efficient scale is reached

Accepted Answer

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

Exam 16: Monopolistic Competition

Which of the following is not an example of Joel Waldfogel's "Tyranny of the Market"?

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

To maximize its profit, a monopolistically competitive firm

Monopolistic competition is the only market structure that features many sellers.

Firms in monopolistically competitive markets and monopolies can earn long-run profits due to barriers to entry.

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

List five goods that are likely sold in a monopolistically competitive market.

A concentration ratio

When advertising is used to relay information about price, each firm is able to enhance market power.

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. How much profit will this firm earn when it chooses its output to maximize profit?

When quality cannot be easily judged in advance, what provides consumers with information about the quality of a product?

According to the signaling theory of advertising, consumers

Figure 16-10 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-10. As the figure is drawn, the firm is in

Which of the following is not a key feature of monopolistic competition?

As developing countries make a transition to market-based economies, one of the first major capital investments is in "Western-quality" hotels. Explain why brand-name hotel accommodations are a critical step in attracting foreign investment.

The debate over whether advertising serves a valuable purpose in society is definitively answered by economists who study the tastes and preferences of individuals.

Scenario 16-2 Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q. -Refer to Scenario 16-2. If the marginal cost of producing this good is 4, what price would a profit-maximizing monopolist charge for the product?

Economists are unanimous in their belief that advertising is socially inefficient.

Figure 16-9 The figure is drawn for a monopolistically-competitive firm. -Refer to Figure 16-9. Efficient scale is reached

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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