Question 1

In a monopolistically competitive industry,how does price compare with marginal cost

Accepted Answer

A)  Price is equal to marginal cost since each firm is a price taker.
B)  Price is below marginal cost since each firm is a price taker.
C)  Price is above marginal cost since each firm is a price setter.
D)  Price is a fraction of marginal cost since each firm is a price setter.E) All of the above
F) B) and C)

Question 2

Why is excess capacity undesirable

Accepted Answer

A)  It reduces product differentiation in a market.
B)  It is the primary source of market inefficiency in monopolistically competitive markets.
C)  It is a characteristic of rising average-total-cost curves.
D)  It illustrates the unlimited market power of a monopolist in the market.E) C) and D)
F) B) and C)

Question 3

Ignoring oligopoly and focusing on the other three types of market structure,in which of those market structures does a profit-maximizing firm experience a zero economic profit

Accepted Answer

A)  perfect competition only
B)  perfect competition and monopolistic competition
C)  perfect competition, and monopoly
D)  monopolistic competition and monopolyE) C) and D)
F) A) and D)

Question 4

Why does each firm in a monopolistically competitive market face a downward-sloping demand curve

Accepted Answer

A)  There are many other sellers in the market.
B)  There are very few other sellers in the market.
C)  That firm's product is different from those offered by other firms in the market.
D)  That firm faces the threat of entry into the market by new firms.E) B) and D)
F) C) and D)

Question 5

When advertising encourages customers to become more informed about all firms in the market,what is the result

Accepted Answer

A)  The demand for each particular brand in the market is likely to become less elastic.
B)  Firms are able to foster stronger brand loyalty.
C)  Each firm is likely to have less control over the price of its product.
D)  The market power of individual firms is strengthened.E) C) and D)
F) A) and B)

Question 6

Figure 16-2
 
-Refer to Figure 16-2.If a firm in a monopolistically competitive market was producing the level of output depicted as QD in panel (d) ,what would it experience

Accepted Answer

A)  It would not be maximizing its profit.
B)  It would be minimizing its losses.
C)  It would be losing market share to other firms in the market.
D)  It would be operating at excess capacity.E) A) and B)
F) B) and C)

Question 7

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods.Firm B produces and sells industrial products.Firm C produces and sells an agricultural commodity.Which firm is likely to spend the greatest portion of its total revenue on advertising

Accepted Answer

A)  Firm A
B)  Firms A and B
C)  Firm B
D)  Firms B and CE) None of the above
F) All of the above

Question 8

New firms will necessarily enter a monopolistically competitive market when price exceeds what amount

Accepted Answer

A)  marginal revenue
B)  average variable cost
C)  marginal cost
D)  average total costE) A) and B)
F) A) and C)

Question 9

In the long run,a monopolistically competitive firm produces a quantity that is which of the following

Accepted Answer

A)  equal to the efficient scale
B)  less than the efficient scale
C)  greater than the efficient scale
D)  consistent with diseconomies of scaleE) All of the above
F) B) and D)

Question 10

What is an important difference between the situations faced by a profit-maximizing monopolistically competitive firm in the short run and in the long run

Accepted Answer

A)  In the short run, price may exceed marginal revenue; in the long run, price equals marginal revenue.
B)  In the short run, price may exceed marginal cost; in the long run, price equals marginal cost.
C)  In the short run, price may exceed average total cost; in the long run, price equals average total cost.
D)  In the short run, price may exceed average variable cost; in the long run, price equals average variable cost.E) A) and D)
F) A) and B)

Question 11

Which statement is a theory of advertising

Accepted Answer

A)  Information on price is a necessary ingredient of effective advertising.
B)  The content of advertising may be irrelevant to product success in the market.
C)  Celebrity advertising is not effective in retail food markets.
D)  Cereal manufacturers should not advertise new cereals.E) C) and D)
F) B) and D)

Question 12

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Accepted Answer

Some people argue that celebri...

Question 13

On a vacation to Cancun,Mexico,you find yourself eating every meal at the local Burger King rather than having a hamburger from one of the street vendors.Your travelling companion claims that you are irrational,since you very rarely eat Burger King hamburgers when you are home and Burger King hamburgers cost more than those prepared and sold by Cancun's street vendors.How would an economist most likely explain your behaviour

Accepted Answer

A)  Your behaviour is rational, but your friend's behaviour is clearly irrational.
B)  Your behaviour is clearly irrational.
C)  The Burger King brand name guarantees consistent quality.
D)  The advertising by Burger King in Cancun is more persuasive than the advertising by Burger King in your home town.E) A) and B)
F) A) and C)

Question 14

Table 16-1
A monopolistically competitive firm faces the following demand curve for its product:
 
-Refer to Table 16-1.The firm has total fixed costs of $20 and a constant marginal cost of $3 per unit.What will the firm do

Accepted Answer

A)  It will produce 8 units; firms will enter the market in the long run.
B)  It will produce 10 units; firms will enter the market in the long run.
C)  It will produce 10 units; firms will exit the market in the long run.
D)  It will produce 12 units; firms will enter the market in the long run.E) A) and B)
F) A) and D)

Question 15

When a market is monopolistically competitive,what is the typical firm in the market likely to experience in the short and long run

Accepted Answer

A)  positive profit in the short run and in the long run
B)  positive or negative profit in the short run and a zero profit in the long run
C)  zero profit in the short run and a positive or negative profit in the long run
D)  zero profit in the short run and in the long runE) None of the above
F) B) and D)

Question 16

Frank is an ice-cream maker in a monopolistic competitive market.He has developed a recipe by using low fat yogurt.Suppose that the marginal cost of producing one scoop of this special ice cream is $0.40 and there is no fixed cost.The demand for Frank's special ice cream per hour is given by the table below.  
a.  How many scoops of ice cream should Frank produce in the short run to maximize profits? What price should he charge?
b.  Calculate his economic profits in the short run.
c.  Lucy also has a special recipe to make low-fat ice cream. Supposing her cost of making a scoop of ice
cream is the same as Frank’s, should she enter the market?
d.  If Lucy enters the market, the demand for Frank’s ice cream will decrease by 2 at each price. Find Frank’s new profit-maximizing quantity, price, and profits.

Accepted Answer

a and b.See the table below.Profit is ma...

Question 17

What is the likely intent of advertising that uses celebrity endorsements

Accepted Answer

A)  increase elasticity of demand for the advertised product
B)  reduce the ability of markets to allocate resources efficiently
C)  provide a signal of product quality
D)  be useful only for psychological effectsE) C) and D)
F) A) and D)

Question 18

When advertising enhances the ability of markets to allocate resources,what is it most likely to be doing

Accepted Answer

A)  conveying information about price, the existence of new products, or locations of retail outlets
B)  addressing psychological rather than informational characteristics of the good
C)  manipulating people's tastes
D)  increasing elasticity of supplyE) A) and C)
F) None of the above

Question 19

A profit-maximizing firm in a monopolistically competitive market generally operates on the downward-sloping portion of its marginal-cost curve.

Accepted Answer

A) True 
 B)False

Question 20

What will happen if firms in a monopolistically competitive market are earning positive profits

Accepted Answer

A)  Firms will likely be subject to regulation.
B)  Barriers to entry will be strengthened.
C)  Some firms must exit the market.
D)  New firms will enter the market.E) A) and D)
F) C) and D)

Exam 16: Monopolistic Competition

When a market is monopolistically competitive,what is the typical firm in the market likely to experience in the short and long run

Correct Answer
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What will happen if firms in a monopolistically competitive market are earning positive profits

Correct Answer
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What is the likely intent of advertising that uses celebrity endorsements

Correct Answer
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Figure 16-2 -Refer to Figure 16-2.If a firm in a monopolistically competitive market was producing the level of output depicted as QD in panel (d) ,what would it experience

Correct Answer
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Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Correct Answer
verified
Some people argue that celebri...
View Answer

Correct Answer
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New firms will necessarily enter a monopolistically competitive market when price exceeds what amount

Correct Answer
verified

In the long run,a monopolistically competitive firm produces a quantity that is which of the following

Correct Answer
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Ignoring oligopoly and focusing on the other three types of market structure,in which of those market structures does a profit-maximizing firm experience a zero economic profit

Correct Answer
verified

Correct Answer
verified
a and b.See the table below.Profit is ma...
View Answer

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods.Firm B produces and sells industrial products.Firm C produces and sells an agricultural commodity.Which firm is likely to spend the greatest portion of its total revenue on advertising

Correct Answer
verified

When advertising encourages customers to become more informed about all firms in the market,what is the result

Correct Answer
verified

Why does each firm in a monopolistically competitive market face a downward-sloping demand curve

Correct Answer
verified

A profit-maximizing firm in a monopolistically competitive market generally operates on the downward-sloping portion of its marginal-cost curve.

Correct Answer
verified

What is an important difference between the situations faced by a profit-maximizing monopolistically competitive firm in the short run and in the long run

Correct Answer
verified

Which statement is a theory of advertising

Correct Answer
verified

When advertising enhances the ability of markets to allocate resources,what is it most likely to be doing

Correct Answer
verified

In a monopolistically competitive industry,how does price compare with marginal cost

Correct Answer
verified

Why is excess capacity undesirable

Correct Answer
verified

Table 16-1 A monopolistically competitive firm faces the following demand curve for its product: -Refer to Table 16-1.The firm has total fixed costs of $20 and a constant marginal cost of $3 per unit.What will the firm do

Correct Answer
verified

Exam 16: Monopolistic Competition

When a market is monopolistically competitive,what is the typical firm in the market likely to experience in the short and long run

Correct AnswerverifiedShow Answer

What will happen if firms in a monopolistically competitive market are earning positive profits

Correct AnswerverifiedShow Answer

What is the likely intent of advertising that uses celebrity endorsements

Correct AnswerverifiedShow Answer

Figure 16-2 -Refer to Figure 16-2.If a firm in a monopolistically competitive market was producing the level of output depicted as QD in panel (d) ,what would it experience

Correct AnswerverifiedShow Answer

Evaluate the following statement: "Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets."

Correct AnswerverifiedSome people argue that celebri...View AnswerShow Answer

Correct AnswerverifiedShow Answer

New firms will necessarily enter a monopolistically competitive market when price exceeds what amount

Correct AnswerverifiedShow Answer

In the long run,a monopolistically competitive firm produces a quantity that is which of the following

Correct AnswerverifiedShow Answer

Ignoring oligopoly and focusing on the other three types of market structure,in which of those market structures does a profit-maximizing firm experience a zero economic profit

Correct AnswerverifiedShow Answer

Correct Answerverifieda and b.See the table below.Profit is ma...View AnswerShow Answer

Firm A produces and sells in a market that is characterized by highly differentiated consumer goods.Firm B produces and sells industrial products.Firm C produces and sells an agricultural commodity.Which firm is likely to spend the greatest portion of its total revenue on advertising

Correct AnswerverifiedShow Answer

When advertising encourages customers to become more informed about all firms in the market,what is the result

Correct AnswerverifiedShow Answer

Why does each firm in a monopolistically competitive market face a downward-sloping demand curve

Correct AnswerverifiedShow Answer

A profit-maximizing firm in a monopolistically competitive market generally operates on the downward-sloping portion of its marginal-cost curve.

Correct AnswerverifiedShow Answer

What is an important difference between the situations faced by a profit-maximizing monopolistically competitive firm in the short run and in the long run

Correct AnswerverifiedShow Answer

Which statement is a theory of advertising

Correct AnswerverifiedShow Answer

When advertising enhances the ability of markets to allocate resources,what is it most likely to be doing

Correct AnswerverifiedShow Answer

In a monopolistically competitive industry,how does price compare with marginal cost

Correct AnswerverifiedShow Answer

Why is excess capacity undesirable

Correct AnswerverifiedShow Answer

Table 16-1 A monopolistically competitive firm faces the following demand curve for its product: -Refer to Table 16-1.The firm has total fixed costs of $20 and a constant marginal cost of $3 per unit.What will the firm do

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Some people argue that celebri...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a and b.See the table below.Profit is ma...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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