Question 1

The relationship between advertising and product differentiation is

Accepted Answer

A)  positive; the more differentiated the product, the more a firm is likely to spend on advertising. 
B)  negative; the more differentiated the product, the less a firm is likely to spend on advertising. 
C)  zero; there is no relationship between product differentiation and advertising. 
D)  irrelevant; firms with differentiated products do not need to advertise.

Question 2

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.

Question 3

Table 16-6
Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling.
 
-Refer to Table 16-6.At the profit-maximizing quantity,what is Traci's total profit?

Accepted Answer

A)  $30 
B)  $59 
C)  $77 
D)  $84

Question 4

In a long-run equilibrium,both perfectly competitive markets and monopolistically competitive markets have price equal to average total cost.

Accepted Answer

A) True 
 B)False

Question 5

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 6

A monopolistically competitive firm

Accepted Answer

A)  has the usual deadweight loss of monopoly pricing. 
B)  experiences a zero profit in a long-run equilibrium. 
C)  is said to have excess capacity. 
D)  All of the above are correct.

Question 7

Among arguments for and against advertising,both sides agree that advertising leads to

Accepted Answer

A)  higher prices and less competitive markets. 
B)  higher prices and more competitive markets. 
C)  lower prices and more competitive markets. 
D)  None of the above is correct. The debate fails to resolve the question of advertising's effect on prices and competition.

Question 8

According to one theory,advertising sends a signal to consumers about the quality of the product being offered.An implication of this theory is that

Accepted Answer

A)  the actual quality of the product is irrelevant. 
B)  the content of the advertisement is irrelevant. 
C)  advertising is not in the best interest of society. 
D)  it is irrational for firms to pay famous people large amounts of money to appear in their advertisements.

Question 9

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 $10.
 
-Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,what price should the firm charge to maximize profit?

Accepted Answer

A)  $5 
B)  $7 
C)  $9 
D)  $11

Question 10

Which of the following best describes the idea of excess capacity in monopolistic competition?

Accepted Answer

A)  Firms produce more output than is socially desirable. 
B)  The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. 
C)  Due to product differentiation, firms choose output levels where price equals average total cost. 
D)  Firms keep some surplus output on hand in case there is a shift in the demand for their product.

Question 11

Scenario 16-3
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 16-3.If the marginal cost of producing this good is 0,how much total consumer surplus would consumers receive in this market?

Accepted Answer

A)  10 
B)  20 
C)  50 
D)  100

Question 12

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

Accepted Answer

A) True 
 B)False

Question 13

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Accepted Answer

A) True 
 B)False

Question 14

Figure 16-1. The figure is drawn for a monopolistically competitive firm.
 
-Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Accepted Answer

A)  with its minimum at the point (Q = 12, P = $18). 
B)  with its minimum at the point (Q = 12, P = $12). 
C)  tangent to the demand curve at the point (Q = 12, P = $18). 
D)  tangent to the demand curve at the point (Q = 16, P = $16).

Question 15

Two bags of chips sit side-by-side in a grocery store: Ruffles (a brand name)sells for $3.00,while Crunchy Chips (not a brand name)sells for $1.50.In a typical day the store sells some of each type of chips,which suggests that

Accepted Answer

A)  no rational consumer would spend twice as much for Ruffles as he would for Crunchy Chips. 
B)  some consumers must perceive that Ruffles is a higher quality product. 
C)  Ruffles has no incentive to maintain the quality of its product just because of the Ruffles brand name. 
D)  None of the above is correct.

Question 16

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

Accepted Answer

A) True 
 B)False

Question 17

Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.

Accepted Answer

A) True 
 B)False

Question 18

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

Accepted Answer

A) True 
 B)False

Question 19

The debate over the efficiency of markets in which products with brand names are sold

Accepted Answer

A)  is framed by the role of regulation in advertising. 
B)  is likely to be resolved by reference to anecdotal evidence. 
C)  hinges on whether consumers are rational in their choices. 
D)  hinges on the effectiveness of advertising that identifies price differences.

Question 20

A monopolistically competitive firm faces the following demand curve for its product: 
The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit.The firm will maximize profit with the production of

Accepted Answer

A)  6 units of output. 
B)  8 units of output. 
C)  10 units of output. 
D)  12 units of output.

Exam 16: Monopolistic Competition.

The relationship between advertising and product differentiation is

When monopolistically competitive firms advertise,in the long run

Table 16-6 Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling. -Refer to Table 16-6.At the profit-maximizing quantity,what is Traci's total profit?

In a long-run equilibrium,both perfectly competitive markets and monopolistically competitive markets have price equal to average total cost.

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost.

A monopolistically competitive firm

Among arguments for and against advertising,both sides agree that advertising leads to

According to one theory,advertising sends a signal to consumers about the quality of the product being offered.An implication of this theory is that

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 $10. -Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,what price should the firm charge to maximize profit?

Which of the following best describes the idea of excess capacity in monopolistic competition?

Scenario 16-3 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 16-3.If the marginal cost of producing this good is 0,how much total consumer surplus would consumers receive in this market?

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

Figure 16-1. The figure is drawn for a monopolistically competitive firm. -Refer to Figure 16-1.Suppose you were to add the ATC curve to the diagram to show the firm in a situation of long-run equilibrium.You would draw the ATC curve

Two bags of chips sit side-by-side in a grocery store: Ruffles (a brand name) sells for $3.00,while Crunchy Chips (not a brand name) sells for $1.50.In a typical day the store sells some of each type of chips,which suggests that

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

Oligopoly and monopolistic competition are examples of a market structure called imperfect competition.

When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,marginal cost must lie below average total cost.

The debate over the efficiency of markets in which products with brand names are sold

A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit.The firm will maximize profit with the production of