Question 1

The deadweight loss that is associated with a monopolistically competitive market is a result of

Accepted Answer

A)  price falling short of marginal cost in order to increase market share. 
B)  price exceeding marginal cost. 
C)  the firm operating in a regulated industry. 
D)  excessive advertising costs. 
A)  price falling short of marginal cost in order to increase market share. 
B)  price exceeding marginal cost. 
C)  the firm operating in a regulated industry. 
D)  excessive advertising costs.

Question 2

An oligopoly

Accepted Answer

A)  has a concentration ratio of less than 50 percent. 
B)  is a price taker. 
C)  is a type of imperfectly competitive market. 
D)  has many firms rather than just one firm or a few firms. 
A)  has a concentration ratio of less than 50 percent. 
B)  is a price taker. 
C)  is a type of imperfectly competitive market. 
D)  has many firms rather than just one firm or a few firms.

Question 3

In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

Accepted Answer

A) True 
 B)False

Question 4

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures results in production of the welfare-maximizing level of output?

Accepted Answer

The answer of Considering perfect competition, monopolistic competition, and monopoly,...

Question 5

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. If YumYum decides to advertise its product it can expect to

Accepted Answer

A)  incur a loss of $15 million. 
B)  incur a loss of $1.5 million. 
C)  earn a profit of $1.5 million. 
D)  earn a profit of $13.5 million. 
A)  incur a loss of $15 million. 
B)  incur a loss of $1.5 million. 
C)  earn a profit of $1.5 million. 
D)  earn a profit of $13.5 million.

Question 6

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald's while vacationing abroad is

Accepted Answer

A)  they can't get enough McDonald's food when they are at home. 
B)  they know and trust the quality associated with the McDonald's brand name. 
C)  the food at local restaurants is of inferior quality. 
D)  that Americans, by their nature, are not very adventurous. 
A)  they can't get enough McDonald's food when they are at home. 
B)  they know and trust the quality associated with the McDonald's brand name. 
C)  the food at local restaurants is of inferior quality. 
D)  that Americans, by their nature, are not very adventurous.

Question 7

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. Given the cost and revenue data, Beatrice's is

Accepted Answer

A)  not in a long-run equilibrium. More businesses will enter the bakery market in the long-run. 
B)  not in a short-run equilibrium. 
C)  not in a long-run equilibrium. Some businesses currently in the bakery market will exit the market in the long- run. 
D)  in a long-run equilibrium. 
A)  not in a long-run equilibrium. More businesses will enter the bakery market in the long-run. 
B)  not in a short-run equilibrium. 
C)  not in a long-run equilibrium. Some businesses currently in the bakery market will exit the market in the long- run. 
D)  in a long-run equilibrium.

Question 8

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. If the government required Beatrice's to produce at the efficient scale of output, how many cakes would Beatrice's sell?

Accepted Answer

A)  4 
B)  5 
C)  6 
D)  7 
A)  4 
B)  5 
C)  6 
D)  7

Question 9

Which of the following statements regarding monopolistic competition is not correct?

Accepted Answer

A)  In the long-run equilibrium, price equals average total cost. 
B)  In the long-run equilibrium, firms earn zero economic profit. 
C)  In the long-run equilibrium, firms charge a price above marginal cost. 
D)  In the long-run equilibrium, firms produce a quantity in excess of their efficient scale. 
A)  In the long-run equilibrium, price equals average total cost. 
B)  In the long-run equilibrium, firms earn zero economic profit. 
C)  In the long-run equilibrium, firms charge a price above marginal cost. 
D)  In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.

Question 10

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

Accepted Answer

A) True 
 B)False

Question 11

Your company has recently requested that you travel to Dhaka, Bangladesh, to work on negotiations for a new factory to be located in one of the port cities. Your travel agent provides a list of several hundred local hotels and a Sheraton. In this case, the Sheraton brand-name is likely to be used as a signal of

Accepted Answer

A)  perceived differences that are not likely to exist among your various options. 
B)  quality when quality cannot be easily judged. 
C)  inefficiency in markets characterized by recognizable brand names. 
D)  the quality of general lodging accommodations in Dhaka. 
A)  perceived differences that are not likely to exist among your various options. 
B)  quality when quality cannot be easily judged. 
C)  inefficiency in markets characterized by recognizable brand names. 
D)  the quality of general lodging accommodations in Dhaka.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B)  A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C)  For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D)  All of the above are correct. 
A)  In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. 
B)  A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. 
C)  For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. 
D)  All of the above are correct.

Question 13

With respect to monopolistic competition,

Accepted Answer

A)  both the business-stealing externality and the product-variety externality are positive externalities. 
B)  the business-stealing externality is a positive externality, while the product-variety externality is a negative externality. 
C)  the business-stealing externality is a negative externality, while the product-variety externality is a positive externality. 
D)  both the business-stealing externality and the product-variety externality are negative externalities. 
A)  both the business-stealing externality and the product-variety externality are positive externalities. 
B)  the business-stealing externality is a positive externality, while the product-variety externality is a negative externality. 
C)  the business-stealing externality is a negative externality, while the product-variety externality is a positive externality. 
D)  both the business-stealing externality and the product-variety externality are negative externalities.

Question 14

The typical firm in the US economy

Accepted Answer

A)  has some degree of market power. 
B)  sells its product for a price that is equal to the marginal cost of producing the last unit. 
C)  is perfectly competitive. 
D)  is a monopoly. 
A)  has some degree of market power. 
B)  sells its product for a price that is equal to the marginal cost of producing the last unit. 
C)  is perfectly competitive. 
D)  is a monopoly.

Question 15

Figure 16-12  
-Refer to Figure 16-12. How much cost per unit could this firm save by producing the efficient level of output rather than the profit-maximizing level of output?

Accepted Answer

A)  $0 
B)  $1 
C)  $2 
D)  $3 
A)  $0 
B)  $1 
C)  $2 
D)  $3

Question 16

A similarity between monopoly and monopolistic competition is that in both market structures

Accepted Answer

A)  strategic interactions among sellers are important. 
B)  there are a small number of sellers. 
C)  sellers are price makers rather than price takers. 
D)  there are only a few buyers but many sellers. 
A)  strategic interactions among sellers are important. 
B)  there are a small number of sellers. 
C)  sellers are price makers rather than price takers. 
D)  there are only a few buyers but many sellers.

Question 17

For a profit-maximizing monopolistically competitive firm, marginal revenue equals marginal cost in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 18

A monopolistically competitive market

Accepted Answer

A)  usually has too many firms, reducing the economic profit of each firm to zero. 
B)  usually has too few firms, reducing the product variety for consumers. 
C)  may have too many or too few firms, and the government can intervene to achieve the optimal number of firms. 
D)  may have too many or too few firms, but the government can do little to rectify the situation. 
A)  usually has too many firms, reducing the economic profit of each firm to zero. 
B)  usually has too few firms, reducing the product variety for consumers. 
C)  may have too many or too few firms, and the government can intervene to achieve the optimal number of firms. 
D)  may have too many or too few firms, but the government can do little to rectify the situation.

Question 19

Both monopolistic competition and oligopoly are market structures

Accepted Answer

A)  that fail to achieve the total surplus achieved by perfect competition. 
B)  that feature only a few firms in each market. 
C)  to which the concept of Nash equilibrium is frequently applied by economists. 
D)  in which firms earn zero economic profit in the long run. 
A)  that fail to achieve the total surplus achieved by perfect competition. 
B)  that feature only a few firms in each market. 
C)  to which the concept of Nash equilibrium is frequently applied by economists. 
D)  in which firms earn zero economic profit in the long run.

Question 20

Entry by new firms into a monopolistically competitive market

Accepted Answer

A)  creates additional consumer surplus. 
B)  imposes a positive externality on existing firms. 
C)  leads to the same externalities that are observed when new firms enter a perfectly competitive market. 
D)  increases the demand for existing firms' products. 
A)  creates additional consumer surplus. 
B)  imposes a positive externality on existing firms. 
C)  leads to the same externalities that are observed when new firms enter a perfectly competitive market. 
D)  increases the demand for existing firms' products.

Exam 16: Monopolistic Competition

The deadweight loss that is associated with a monopolistically competitive market is a result of

An oligopoly

In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

Considering perfect competition, monopolistic competition, and monopoly, which of the market structures results in production of the welfare-maximizing level of output?

It has been said that many of the patrons in McDonald's restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald's while vacationing abroad is

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. Given the cost and revenue data, Beatrice's is

Which of the following statements regarding monopolistic competition is not correct?

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

Which of the following statements is correct?

With respect to monopolistic competition,

The typical firm in the US economy

Figure 16-12 -Refer to Figure 16-12. How much cost per unit could this firm save by producing the efficient level of output rather than the profit-maximizing level of output?

A similarity between monopoly and monopolistic competition is that in both market structures

For a profit-maximizing monopolistically competitive firm, marginal revenue equals marginal cost in

A monopolistically competitive market

Both monopolistic competition and oligopoly are market structures

Entry by new firms into 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

Filters