Question 1

Brand names can help communicate the quality of a product, even when the consumer has never purchased that product before.

Accepted Answer

A) True 
 B)False

Question 2

You intend travelling to Shanghai, China, to market truck-parts to local manufacturers.Your travel agent provides a list of 120 local hotels and a Sheraton.In this case, the Sheraton brand-name is likely to be used as a signal of:

Accepted Answer

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

Question 3

Graph 17-2 
-Refer to graph 17-2.Which of the graphs shown would be consistent with the firm making short-run profit in a competitive market?

Accepted Answer

A) panel a 
B) panel b 
C) panel c 
D) panel d

Question 4

A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.As a result of the new organic ale, product-variety externalities would be manifest in the new product:

Accepted Answer

A) duplicating the flavours of the most expensive products in the beer market 
B) duplicating the flavours of the least expensive products in the beer market 
C) if its flavours were no different to the alternatives in the beer market 
D) generating flavours that are different to other products in the beer market

Question 5

Defenders of advertising would argue that advertising conveys information about which of the following?
(i) the prices of goods offered for sale
(ii) the existence of new products
(iii) the location of retail outlets

Accepted Answer

A) (i) only 
B) (ii) and (iii) only 
C) none of the above 
D) (i), (ii) and (iii)

Question 6

What characteristics describe the long-run equilibrium in a monopolistically competitive market?
(i) price exceeds marginal cost
(ii) price equals average total cost
(iii) quantity produced is at each firm's efficient scale

Accepted Answer

A) (i) only 
B) (i) and (ii) only 
C) (ii) and (iii) only 
D) (i), (ii) and (iii)

Question 7

Excess capacity occurs whenever a firm is operating at an output level below where average total cost is minimised.

Accepted Answer

A) True 
 B)False

Question 8

The entry and exit of firms in a monopolistically competitive market guarantees that:

Accepted Answer

A) economic profits and economic losses disappear in the long run 
B) economic profits can survive in the long run, but not economic losses 
C) economic losses will exist in the long run, but not economic profits 
D) both economic profits and economic losses will exist in the long run

Question 9

Critics of markets that are characterised by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that:

Accepted Answer

A) are indistinguishable from generic products 
B) are very different from generic products 
C) have elastic demand curves 
D) consumer advocate groups have found to be inferior

Question 10

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Accepted Answer

A) True 
 B)False

Question 11

Important similarities between firms in a monopolistically competitive market and a monopoly are which of the following?:
(i) they both face downward-sloping demand curves
(ii) they are both regulated by the government
(iii) firms in both markets can make economic profits in the long run

Accepted Answer

A) (ii) and (iii) 
B) (ii) only 
C) (i) and (iii) 
D) (i) only

Question 12

Suppose a firm enters a monopolistically competitive market with a new product.Consumers now have more choice.This increase in choice means that:

Accepted Answer

A) a product-variety externality has occurred 
B) an advertising externality has occurred 
C) consumers are now worse off as they must visit more shops 
D) consumers are likely to experience negative consumption externalities

Question 13

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets firms try to mimic the success of other brands and products.

Accepted Answer

A) True 
 B)False

Question 14

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

Accepted Answer

The answer of What is the similarity between a long-run...

Question 15

As some incumbent firms exit a monopolistically competitive market, profits of existing firms:

Accepted Answer

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

Question 16

A monopolistically competitive firm chooses its production level the same way as a(n):

Accepted Answer

A) duopolist 
B) oligopolist 
C) perfectly competitive firm 
D) monopolist

Question 17

Whenever a new firm considers entry into a monopolistically competitive market with a new product, it considers:

Accepted Answer

A) only the profit opportunities 
B) the business-stealing externality 
C) the product-variety externality 
D) all of the above

Question 18

The business stealing externality arises because firms post a price above marginal cost and are therefore always eager to sell additional units.

Accepted Answer

A) True 
 B)False

Question 19

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

Accepted Answer

A) True 
 B)False

Question 20

If a firm is making zero profits, then which of the following must be true?

Accepted Answer

A) price equals average total cost 
B) price equals marginal cost 
C) the firm is operating at its efficient scale 
D) the firm is not marking up over marginal cost

Exam 16: Monopolistic Competition

Brand names can help communicate the quality of a product, even when the consumer has never purchased that product before.

You intend travelling to Shanghai, China, to market truck-parts to local manufacturers.Your travel agent provides a list of 120 local hotels and a Sheraton.In this case, the Sheraton brand-name is likely to be used as a signal of:

Graph 17-2 -Refer to graph 17-2.Which of the graphs shown would be consistent with the firm making short-run profit in a competitive market?

A new brewing company announces that it is releasing a new organic ale into the beer market.You can assume that the market for beer is characterised by monopolistic competition.As a result of the new organic ale, product-variety externalities would be manifest in the new product:

Defenders of advertising would argue that advertising conveys information about which of the following? (i) the prices of goods offered for sale (ii) the existence of new products (iii) the location of retail outlets

What characteristics describe the long-run equilibrium in a monopolistically competitive market? (i) price exceeds marginal cost (ii) price equals average total cost (iii) quantity produced is at each firm's efficient scale

Excess capacity occurs whenever a firm is operating at an output level below where average total cost is minimised.

The entry and exit of firms in a monopolistically competitive market guarantees that:

Critics of markets that are characterised by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that:

In a monopolistically competitive industry, the profit-maximising firm will produce where marginal costs are equal to average total cost.

Important similarities between firms in a monopolistically competitive market and a monopoly are which of the following?: (i) they both face downward-sloping demand curves (ii) they are both regulated by the government (iii) firms in both markets can make economic profits in the long run

Suppose a firm enters a monopolistically competitive market with a new product.Consumers now have more choice.This increase in choice means that:

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets firms try to mimic the success of other brands and products.

What is the similarity between a long-run equilibrium in a monopolistically competitive market with a monopoly? What is the difference?

As some incumbent firms exit a monopolistically competitive market, profits of existing firms:

A monopolistically competitive firm chooses its production level the same way as a(n) :

Whenever a new firm considers entry into a monopolistically competitive market with a new product, it considers:

The business stealing externality arises because firms post a price above marginal cost and are therefore always eager to sell additional units.

Advertising may impede competition by fostering brand loyalty and allowing firms to increase their mark-up.

If a firm is making zero profits, then which of the following must be true?