Question 1

Why is the administrative burden of regulating price in a monopolistically competitive market relatively large

Accepted Answer

A)  because of economies of scale
B)  because price is usually below marginal cost
C)  because of the large number of firms that produce differentiated products
D)  because firms produce with excess capacityE) None of the above
F) A) and D)

Question 2

Which statement best explains the welfare loss associated with a monopolistically competitive market

Accepted Answer

A)  The entry of new firms creates externalities.
B)  The absence of restrictions on entry by new firms ensures that there will be no deadweight loss.
C)  There are generally too many firms in the market relative to the socially optimal number of firms.
D)  There are generally too few firms in the market relative to the socially optimal number of firms.E) A) and B)
F) A) and C)

Question 3

In monopolistically competitive markets,what is the role that economic losses play

Accepted Answer

A)  They signal some incumbent firms to exit the market.
B)  They signal new firms to enter the market.
C)  They are maintained through government-imposed barriers to exit.
D)  They show that they are price takers in the market.E) A) and D)
F) A) and B)

Question 4

It is a well-publicized fact that television advertisements aired during major sporting events are very expensive.Therefore,a theory asserting that people buy a product simply because it is advertised would suggest that publicizing information regarding the cost of advertising does which of the following

Accepted Answer

A)  It enhances the effectiveness of the advertisement.
B)  It reduces people's willingness to purchase advertised products.
C)  It is leaked to discredit the firms that spend so much on advertising.
D)  It reduces the effective staying power of a product.E) B) and D)
F) B) and C)

Question 5

Suppose that monopolistically competitive firms in a certain market are earning positive profits.What happens in the transition from this initial situation to a long-run equilibrium

Accepted Answer

A)  The number of firms in the market decreases.
B)  Each incumbent firm experiences a decrease in demand for its product.
C)  Marginal revenue will increase.
D)  Average revenue will increase.E) B) and C)
F) A) and B)

Question 6

For a profit-maximizing monopolistically competitive firm,how does price compare with marginal cost

Accepted Answer

A)  In the short run, price exceeds marginal cost, but in the long run, price equals marginal cost.
B)  In the short run, price equals marginal cost, but in the long run, price exceeds marginal cost.
C)  In both the short run and the long run, price exceeds marginal cost.
D)  In both the short run and the long run, price equals marginal cost.E) A) and B)
F) A) and C)

Question 7

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Accepted Answer

It does so because i...

Question 8

For profit-maximizing firms in a monopolistically competitive market,what results from gaining another customer

Accepted Answer

A)  no change in profit
B)  more profit
C)  potential economic losses
D)  marginal cost potentially in excess of priceE) A) and B)
F) B) and C)

Question 9

Eunice consumes Coki,a leading cola brand,exclusively.She claims that there is a clear taste difference and that competing brands of cola leave an unsavoury residual taste in her mouth.However,in a blind taste test,Eunice is found to prefer generic store-brand cola to Coki eight out of ten times.The results of Eunice's taste test would reinforce claims by critics of brand names of which of the following

Accepted Answer

A)  Consumers are generally willing to pay more for brand names.
B)  Brand names cause consumers to perceive differences that do not really exist.
C)  Brand names cause consumers to be more sensitive to product differences.
D)  Brand names are a form of socially efficient advertising.E) All of the above
F) B) and C)

Question 10

In monopolistically competitive markets,what is the role that economic profits play

Accepted Answer

A)  They signal some incumbent firms to exit the market.
B)  They signal new firms to enter the market.
C)  They are maintained through government-imposed barriers to entry.
D)  They show that they are price takers in the market.E) A) and B)
F) C) and D)

Question 11

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

Accepted Answer

A) True 
 B)False

Question 12

In monopolistically competitive markets,what does the property of free entry and exit suggest

Accepted Answer

A)  The market structure will eventually be characterized by perfect competition in the long run.
B)  All firms earn zero economic profits in the long run.
C)  Some firms will be able to earn economic profits in the long run.
D)  Some firms will be forced to incur economic losses in the long run.E) B) and C)
F) A) and B)

Question 13

As new firms enter a monopolistically competitive market,what happens to profits of existing firms and product diversity in the market

Accepted Answer

A)  Profits of existing firms rise and product diversity in the market increases.
B)  Profits of existing firms rise and product diversity in the market decreases.
C)  Profits of existing firms decline and product diversity in the market increases.
D)  Profits of existing firms decline and product diversity in the market decreases.E) B) and D)
F) None of the above

Question 14

Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the statement best explains the differences between the two firms' sales strategies

Accepted Answer

A)  Firm A will set the price for its products and Firm B will not set the price.
B)  Firm A will not set the price for its products and Firm B will set the price.
C)  Firm B would be eager to make an additional sale, but Firm A would not care whether it made an additional sale or not.
D)  Firm A would be eager to make an additional sale, but Firm B would not care whether it made an additional sale or not.E) None of the above
F) All of the above

Question 15

In the long run,a profit-maximizing firm in a monopolistically competitive market operates at which of the following

Accepted Answer

A)  a level of output at which marginal revenue is rising
B)  a level of output at which marginal cost is falling
C)  a level of output at which average total cost is falling
D)  a level of output at which average total cost is risingE) None of the above
F) All of the above

Question 16

Scenario 16-2
Consider the problem facing two firms in the fast-food restaurant market, Firm A and Firm B.Each company has just come up with an idea for a new fast-food menu item, which it would sell for $6.Assume that the marginal cost for each new menu item 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 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any staying power in the market.Even though it could get 2 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future.Firm B'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, Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year, for a total of 24 million units.
-Refer to Scenario 16-2.By its willingness to spend money on advertising,Firm B does which of the following

Accepted Answer

A)  It signals the value of its new product to consumers.
B)  It signals that it is not a profit maximizer.
C)  It detracts from the efficiency of markets.
D)  It increases its variable costs.E) All of the above
F) A) and B)

Question 17

Which goods are sold in a monopolistically competitive market

Accepted Answer

A)  shoes
B)  wheat
C)  corn
D)  postage stampsE) A) and B)
F) C) and D)

Question 18

Scenario 16-1
Vacation Inns of Canada (VIC)  has recently announced intentions of building a new spa resort complex in Vernon, British Columbia.Assume that the hotel and resort market in Vernon is characterized by monopolistic competition.
-Refer to Scenario 16-1.Existing hotels,motels,and lodging facilities in Vernon are likely to experience what kind of externality as a result of the new VIC resort

Accepted Answer

A)  product-variety
B)  business-stealing
C)  competitive
D)  advertisingE) A) and B)
F) A) and C)

Question 19

What does the free entry and exit of firms in a monopolistically competitive market guarantee

Accepted Answer

A)  Both economic profits and economic losses can persist into the long run.
B)  Both economic profits and economic losses disappear in the long run.
C)  Both economic profits and economic losses increase in the long run.
D)  Both economic profits and economic losses decrease in the long run.E) B) and C)
F) A) and B)

Question 20

When a monopolistically competitive firm is in long-run equilibrium,what do we know

Accepted Answer

A)  Marginal revenue is equal to marginal cost.
B)  Marginal revenue is equal to average revenue.
C)  Price is equal to marginal revenue.
D)  Price is equal to marginal cost.E) B) and D)
F) None of the above

Exam 16: Monopolistic Competition

What does the free entry and exit of firms in a monopolistically competitive market guarantee

Correct Answer
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Correct Answer
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For profit-maximizing firms in a monopolistically competitive market,what results from gaining another customer

Correct Answer
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In monopolistically competitive markets,what is the role that economic profits play

Correct Answer
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Why is the administrative burden of regulating price in a monopolistically competitive market relatively large

Correct Answer
verified

As new firms enter a monopolistically competitive market,what happens to profits of existing firms and product diversity in the market

Correct Answer
verified

Which goods are sold in a monopolistically competitive market

Correct Answer
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In monopolistically competitive markets,what is the role that economic losses play

Correct Answer
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Correct Answer
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When a monopolistically competitive firm is in long-run equilibrium,what do we know

Correct Answer
verified

Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Correct Answer
verified
It does so because i...
View Answer

In monopolistically competitive markets,what does the property of free entry and exit suggest

Correct Answer
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Correct Answer
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Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the statement best explains the differences between the two firms' sales strategies

Correct Answer
verified

Which statement best explains the welfare loss associated with a monopolistically competitive market

Correct Answer
verified

For a profit-maximizing monopolistically competitive firm,how does price compare with marginal cost

Correct Answer
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Suppose that monopolistically competitive firms in a certain market are earning positive profits.What happens in the transition from this initial situation to a long-run equilibrium

Correct Answer
verified

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

Correct Answer
verified

In the long run,a profit-maximizing firm in a monopolistically competitive market operates at which of the following

Correct Answer
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Correct Answer
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Exam 16: Monopolistic Competition

What does the free entry and exit of firms in a monopolistically competitive market guarantee

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For profit-maximizing firms in a monopolistically competitive market,what results from gaining another customer

Correct AnswerverifiedShow Answer

In monopolistically competitive markets,what is the role that economic profits play

Correct AnswerverifiedShow Answer

Why is the administrative burden of regulating price in a monopolistically competitive market relatively large

Correct AnswerverifiedShow Answer

As new firms enter a monopolistically competitive market,what happens to profits of existing firms and product diversity in the market

Correct AnswerverifiedShow Answer

Which goods are sold in a monopolistically competitive market

Correct AnswerverifiedShow Answer

In monopolistically competitive markets,what is the role that economic losses play

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a monopolistically competitive firm is in long-run equilibrium,what do we know

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Why does a typical monopolistically competitive firm face a downward-sloping demand curve?

Correct AnswerverifiedIt does so because i...View AnswerShow Answer

In monopolistically competitive markets,what does the property of free entry and exit suggest

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Firm A is a perfectly competitive firm.Firm B is a monopolistically competitive firm.Both firms are currently maximizing their respective profits.Which of the statement best explains the differences between the two firms' sales strategies

Correct AnswerverifiedShow Answer

Which statement best explains the welfare loss associated with a monopolistically competitive market

Correct AnswerverifiedShow Answer

For a profit-maximizing monopolistically competitive firm,how does price compare with marginal cost

Correct AnswerverifiedShow Answer

Suppose that monopolistically competitive firms in a certain market are earning positive profits.What happens in the transition from this initial situation to a long-run equilibrium

Correct AnswerverifiedShow Answer

The claim that advertising reduces the elasticity of demand is likely to be made by a defender of advertising.

Correct AnswerverifiedShow Answer

In the long run,a profit-maximizing firm in a monopolistically competitive market operates at which of the following

Correct AnswerverifiedShow Answer

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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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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It does so because i...
View 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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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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