Question 1

When monopolistically competitive firms advertise, in the long run

Accepted Answer

A)  they will still earn zero economic profit. 
B)  they can earn positive economic profit by increasing market share. 
C)  the market price must fall. 
D)  the market price must rise. 
A)  they will still earn zero economic profit. 
B)  they can earn positive economic profit by increasing market share. 
C)  the market price must fall. 
D)  the market price must rise.

Question 2

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. What price should Peter charge per double scoop ice cream cone to maximize his profit?

Accepted Answer

A)  $5.60 
B)  $4.40 
C)  $3.20 
D)  $2.40 
A)  $5.60 
B)  $4.40 
C)  $3.20 
D)  $2.40

Question 3

Table 16-3
The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries.  
-Refer to Table 16-3. Based on the concentration ratio, which industry is the most competitive?

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 4

Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20.  
-Refer to Table 16-7. When this firm profit maximizes and faces a constant marginal cost of $7, what is the amount of its markup over marginal cost?

Accepted Answer

The answer of Table 16-7
A monopolistically competitive firm faces the...

Question 5

A firm in a monopolistically competitive market faces a

Accepted Answer

A)  downward­sloping demand curve because the firm's product is different from those offered by other firms. 
B)  downward-sloping demand curve because there are only a few firms in the market. 
C)  horizontal demand curve because there are many firms in the market. 
D)  horizontal demand curve because firms can enter the market without restriction. 
A)  downward­sloping demand curve because the firm's product is different from those offered by other firms. 
B)  downward-sloping demand curve because there are only a few firms in the market. 
C)  horizontal demand curve because there are many firms in the market. 
D)  horizontal demand curve because firms can enter the market without restriction.

Question 6

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses, Benham found that

Accepted Answer

A)  the average price paid for eyeglasses was nearly 20% higher in the states that did not restrict advertising. 
B)  the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising. 
C)  there was no difference in the average price paid between states that restricted advertising and those that did not. 
D)  the average price paid for eyeglasses was almost 5 times higher in the states that did not restrict advertising. 
A)  the average price paid for eyeglasses was nearly 20% higher in the states that did not restrict advertising. 
B)  the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising. 
C)  there was no difference in the average price paid between states that restricted advertising and those that did not. 
D)  the average price paid for eyeglasses was almost 5 times higher in the states that did not restrict advertising.

Question 7

Figure 16-2. The figure is drawn for a monopolistically competitive firm.  
-Refer to Figure 16-2. The firm's profit­maximizing level of output is

Accepted Answer

A)  16 units. 
B)  24 units. 
C)  32 units. 
D)  48 units. 
A)  16 units. 
B)  24 units. 
C)  32 units. 
D)  48 units.

Question 8

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

Accepted Answer

A) True 
 B)False

Question 9

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for each industry.  
-Refer to Table 16-2. What is the concentration ratio for Industry L?

Accepted Answer

A)  about 99% 
B)  about 77% 
C)  about 41% 
D)  about 16% 
A)  about 99% 
B)  about 77% 
C)  about 41% 
D)  about 16%

Question 10

In a long-run equilibrium,

Accepted Answer

A)  only a perfectly competitive firm operates at its efficient scale. 
B)  only a monopolistically competitive firm operates at its efficient scale. 
C)  neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost. 
D)  both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production. 
A)  only a perfectly competitive firm operates at its efficient scale. 
B)  only a monopolistically competitive firm operates at its efficient scale. 
C)  neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost. 
D)  both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.

Question 11

For the economy as a whole, spending on advertising comprises about what percent of total firm revenue?

Accepted Answer

A)  0.5 
B)  2 
C)  10 
D)  20 
A)  0.5 
B)  2 
C)  10 
D)  20

Question 12

Roberto consumes Coke exclusively. He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste test, Roberto is found to prefer Coke to store-brand cola eight out of ten times. The results of Roberto's taste test would refute claims by critics of brand names that

Accepted Answer

A)  consumers are always willing to pay more for brand names. 
B)  brand names cause consumers to perceive differences that do not really exist. 
C)  consumers with the lowest levels of income are the most likely to be influenced by brand name advertising. 
D)  brand names are a form of socially efficient advertising. 
A)  consumers are always willing to pay more for brand names. 
B)  brand names cause consumers to perceive differences that do not really exist. 
C)  consumers with the lowest levels of income are the most likely to be influenced by brand name advertising. 
D)  brand names are a form of socially efficient advertising.

Question 13

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

Accepted Answer

A)  no change in profits for all hotels/motels. 
B)  reduced efficiency of local lodging markets. 
C)  a request by consumers to increase the number of billboards. 
D)  increased price competition among hotels/motels in the community. 
A)  no change in profits for all hotels/motels. 
B)  reduced efficiency of local lodging markets. 
C)  a request by consumers to increase the number of billboards. 
D)  increased price competition among hotels/motels in the community.

Question 14

When consumers are exposed to additional choices that result from the introduction of a new product,

Accepted Answer

A)  their satisfaction is likely to be lowered as a result of their having to make additional choices. 
B)  a product-variety externality is said to occur. 
C)  an advertising externality is said to occur. 
D)  consumers are likely to experience negative consumption externalities. 
A)  their satisfaction is likely to be lowered as a result of their having to make additional choices. 
B)  a product-variety externality is said to occur. 
C)  an advertising externality is said to occur. 
D)  consumers are likely to experience negative consumption externalities.

Question 15

A business-stealing externality is

Accepted Answer

A)  an externality that is likely to be punished under antitrust laws. 
B)  the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. 
C)  an externality that is considered to be an explicit cost of business in monopolistically competitive markets. 
D)  the negative externality associated with entry of new firms in a monopolistically competitive market. 
A)  an externality that is likely to be punished under antitrust laws. 
B)  the negative externality that occurs when one firm attempts to duplicate exactly the product of a different firm. 
C)  an externality that is considered to be an explicit cost of business in monopolistically competitive markets. 
D)  the negative externality associated with entry of new firms in a monopolistically competitive market.

Question 16

Table 16-3
The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries.  
-Refer to Table 16-3. What is the concentration ratio for Industry D?

Accepted Answer

A)  approximately 48% 
B)  approximately 54% 
C)  approximately 60% 
D)  approximately 66% 
A)  approximately 48% 
B)  approximately 54% 
C)  approximately 60% 
D)  approximately 66%

Question 17

Critics of advertising argue that advertising

Accepted Answer

A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers. 
A)  creates demand for products that people otherwise do not want or need. 
B)  lowers barriers to entry into an industry because new firms can more easily establish themselves as competitors. 
C)  increases competition by providing information about prices. 
D)  encourages monopolization of markets by raising entry barriers.

Question 18

One theory of advertising suggests that

Accepted Answer

A)  advertising is more effective for industrial products than consumer products. 
B)  the content of advertising may be irrelevant to product success in the market. 
C)  regulations limiting advertising benefit consumers, but not producers. 
D)  television advertising is more effective in reducing competition than ads on websites. 
A)  advertising is more effective for industrial products than consumer products. 
B)  the content of advertising may be irrelevant to product success in the market. 
C)  regulations limiting advertising benefit consumers, but not producers. 
D)  television advertising is more effective in reducing competition than ads on websites.

Question 19

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

Accepted Answer

A)  a perfectly competitive firm. 
B)  a duopolist. 
C)  a monopolist. 
D)  an oligopolist. 
A)  a perfectly competitive firm. 
B)  a duopolist. 
C)  a monopolist. 
D)  an oligopolist.

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. How many ice cream cones should Peter sell in one day to maximize his profits?

Accepted Answer

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

Exam 16: Monopolistic Competition

When monopolistically competitive firms advertise, in the long run

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. Based on the concentration ratio, which industry is the most competitive?

A firm in a monopolistically competitive market faces a

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses, Benham found that

Figure 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. The firm's profit­maximizing level of output is

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for each industry. -Refer to Table 16-2. What is the concentration ratio for Industry L?

In a long-run equilibrium,

For the economy as a whole, spending on advertising comprises about what percent of total firm revenue?

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to

When consumers are exposed to additional choices that result from the introduction of a new product,

A business-stealing externality is

Table 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. -Refer to Table 16-3. What is the concentration ratio for Industry D?

Critics of advertising argue that advertising

One theory of advertising suggests that

A monopolistically competitive firm's choice of output level is virtually identical to the choice made by

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 16-2. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-2. The firm's profitmaximizing level of output is