Question 1

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Accepted Answer

A)  entry and exit are not restricted
B)  firms produce at excess capacity
C)  firms try to differentiate their products
D)  firms produce homogeneous products

Question 2

For which of the following reasons is the existence of business-stealing externalities and product-variety externalities unique to profit-maximising firms in a monopolistically competitive market?
(i)  there are few firms in the market, but each firm produces several different varieties of the product
(ii)  there are many firms in the market, each with a different variety of the product
(iii)  profit-maximising price exceeds marginal cost

Accepted Answer

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

Question 3

There are externalities associated with entry into a monopolistically competitive market.The product-variety externality arises because:

Accepted Answer

A)  new firms offer products different to the existing firms, and consumers value choice
B)  incumbent firms offer a range of differentiated products, which is valued by consumers
C)  entry increases competition and lowers prices, which benefits all consumers
D)  firms post a price above marginal cost and are eager to sell too many units

Question 4

You are trying to decide whether to buy a new camera for your trip.You have a choice of a new Canon or a camera made by a generic manufacturer.You buy the Canon but unfortunately, the camera's shutter quickly breaks and you decide to buy a different brand camera to replace it.This example would reinforce the claim that:

Accepted Answer

A)  brand names are a signal of quality
B)  firms have a financial stake in maintaining the reputation of their brand names
C)  brand names always maintain consistent quality
D)  none of the above are true

Question 5

If the long-run price is equal to marginal cost, then the firm must be operating at efficient scale.

Accepted Answer

A) True 
 B)False

Question 6

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Accepted Answer

A)  inflame carnal desire
B)  encourage sunbathing in general
C)  provide helpful information about a tourist destination
D)  manipulate people's tastes through psychological messages

Question 7

Advertising that uses celebrity endorsements is most likely intended to:

Accepted Answer

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

Question 8

How might a brand name ensure that customers buy high-quality goods?

Accepted Answer

There are two related arguments.Brand na...

Question 9

An important criticism of advertising is that in some markets it may:

Accepted Answer

A)  expand brand loyalty
B)  attract products of lower quality in the market
C)  increase elasticity of demand
D)  drive market prices down

Question 10

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Accepted Answer

A)  are superior quality
B)  have low prices
C)  have high prices
D)  are inferior quality

Question 11

In the long-run equilibrium, a difference between monopolistically competitive firms and perfectly competitive firms is:

Accepted Answer

A)  monopolistically competitive firms produce on the downward sloping section of their ATC curves, while perfectly competitive firms produce at the minimum of ATC
B)  monopolistically competitive firms set P=MC, while competitive firms set P=MR
C)  individual firm demand slopes down for monopolistically competitive firms, while market demand is horizontal for perfectly competitive markets
D)  average total cost is U-shaped for monopolistically competitive firms, while it is downward sloping for perfectly competitive firms

Question 12

Brand names are associated with which of the following arguments?
(i)  brand names provide information about quality, when quality cannot be easily judged
(ii)  firms that promote brand names have strong incentives to monitor product quality
(iii)  firms that promote brand names face an elastic demand for their product

Accepted Answer

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

Question 13

Like a competitive firm, a monopolistically competitive firm maximises profit by setting P=MC.

Accepted Answer

A) True 
 B)False

Question 14

What two characteristics describe the long-run equilibrium in a monopolistically competitive market? What markets (monopoly, competitive, or oligopoly) does the monopolistically competitive market share each characteristic with?

Accepted Answer

1) As in a competitive market,...

Question 15

Which of the following goods are not sold in monopolistically competitive markets?

Accepted Answer

A)  corn
B)  CDs
C)  books
D)  cookies

Question 16

In a monopolistically competitive industry, price is:

Accepted Answer

A)  above marginal cost since each firm is a price setter
B)  equal to marginal cost since each firm is a price taker
C)  below marginal cost since each firm is a price setter
D)  always a fraction of marginal cost since each firm is a price setter

Question 17

According to the information provided, if Firm B decides to advertise its product it can expect to:

Accepted Answer

A)  have a profit of $72 million per year
B)  incur a loss of $18 million per year
C)  have a profit of $77 million per year
D)  exit the industry

Question 18

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Accepted Answer

A)  burden of the deadweight loss falls entirely on consumers
B)  burden of the deadweight loss falls entirely on producers
C)  deadweight loss is dissipated by the excess capacity
D)  market experiences a deadweight loss

Question 19

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following goods are sold in a monopolistically competitive market?

Accepted Answer

A)  electricity generation
B)  wheat
C)  iron ore
D)  restaurants

Exam 16: Monopolistic Competition

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Correct Answer
verified

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Correct Answer
verified

What two characteristics describe the long-run equilibrium in a monopolistically competitive market? What markets (monopoly, competitive, or oligopoly) does the monopolistically competitive market share each characteristic with?

Correct Answer
verified
1) As in a competitive market,...
View Answer

Like a competitive firm, a monopolistically competitive firm maximises profit by setting P=MC.

Correct Answer
verified

Which of the following goods are not sold in monopolistically competitive markets?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Advertising that uses celebrity endorsements is most likely intended to:

Correct Answer
verified

If the long-run price is equal to marginal cost, then the firm must be operating at efficient scale.

Correct Answer
verified

Correct Answer
verified

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Correct Answer
verified

Which of the following goods are sold in a monopolistically competitive market?

Correct Answer
verified

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Correct Answer
verified

According to the information provided, if Firm B decides to advertise its product it can expect to:

Correct Answer
verified

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Correct Answer
verified

There are externalities associated with entry into a monopolistically competitive market.The product-variety externality arises because:

Correct Answer
verified

An important criticism of advertising is that in some markets it may:

Correct Answer
verified

In a monopolistically competitive industry, price is:

Correct Answer
verified

In the long-run equilibrium, a difference between monopolistically competitive firms and perfectly competitive firms is:

Correct Answer
verified

How might a brand name ensure that customers buy high-quality goods?

Correct Answer
verified
There are two related arguments.Brand na...
View Answer

Exam 16: Monopolistic Competition

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Correct AnswerverifiedShow Answer

An important defence of advertising is that it is not rational for profit-maximising firms to spend money on advertising for products that:

Correct AnswerverifiedShow Answer

What two characteristics describe the long-run equilibrium in a monopolistically competitive market? What markets (monopoly, competitive, or oligopoly) does the monopolistically competitive market share each characteristic with?

Correct Answerverified1) As in a competitive market,...View AnswerShow Answer

Like a competitive firm, a monopolistically competitive firm maximises profit by setting P=MC.

Correct AnswerverifiedShow Answer

Which of the following goods are not sold in monopolistically competitive markets?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Advertising that uses celebrity endorsements is most likely intended to:

Correct AnswerverifiedShow Answer

If the long-run price is equal to marginal cost, then the firm must be operating at efficient scale.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a profit-maximising firm in a monopolistically competitive market charges a price higher than marginal cost, the:

Correct AnswerverifiedShow Answer

Which of the following goods are sold in a monopolistically competitive market?

Correct AnswerverifiedShow Answer

The product-variety externality associated with monopolistic competition arises because in monopolistically competitive markets:

Correct AnswerverifiedShow Answer

According to the information provided, if Firm B decides to advertise its product it can expect to:

Correct AnswerverifiedShow Answer

In the short run, a firm in a monopolistically competitive market operates much like a monopolist.

Correct AnswerverifiedShow Answer

There are externalities associated with entry into a monopolistically competitive market.The product-variety externality arises because:

Correct AnswerverifiedShow Answer

An important criticism of advertising is that in some markets it may:

Correct AnswerverifiedShow Answer

In a monopolistically competitive industry, price is:

Correct AnswerverifiedShow Answer

In the long-run equilibrium, a difference between monopolistically competitive firms and perfectly competitive firms is:

Correct AnswerverifiedShow Answer

How might a brand name ensure that customers buy high-quality goods?

Correct AnswerverifiedThere are two related arguments.Brand na...View AnswerShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
1) As in a competitive market,...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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There are two related arguments.Brand na...
View Answer